Stocks Soar Into the Bell, VIX Drops Over 5%
A blend of good data, QE II and a change of the guard in Washington made the rally in risk assets pretty substantial Thursday as markets soared into the close. With the Fed committed to economic stimulus through the first half of 2011, Bernanke publicly declaring higher stock prices an objective of his policy and with indications of a pickup in underlying economic growth, the environment is seen as being favorable for risk assets. The pickup in trading in the financials today is seen as a very important indicator for the tape as this space has been a big laggard over the past couple of quarters.
The Dow Jones Industrial Average ended up 219.71 points, or 1.96%, to close at 11,434. The S&P 500 rose 23.10 points, or 1.93%, to close at 1221, and the Nasdaq was up 37.07 points, or 1.46%, to finish at 2577.
The CBOE Volatility IndexI:VIX puts were active on November volatility as traders adjust positions to "new lower volatility norm". VIX closed down $1.03 at $18.52, on put volume of 287,000 contracts compared to call volume of 253,000, with December 20 puts as the most active strike on 66,000 contracts. Active put volume suggests traders are adjusting positions on the larger-than-anticipated standard deviation move of the market and volatility moving lower.
The SPDR S&P 500 ETF (SPY) - Get Report volatility continues to trend lower as it rallied 1.9% into jobs report . The SPYs closed up $2.31, at $122.26, on overall put volume of 1.50 million contracts trading as compared to call volume of 1.03 million, with the November 116 puts as the most active series on 101,500 contracts. November monthly put option implied volatility is at 16 and December is at 18 versus its 26-week average of 23. Lower volatility suggests decreasing price movement. Out-of-the-money long premium call owners have been winners as stocks have rallied over the past five days, however the gains are not as dramatic because implied volatility has decreased.
A common measure of put-option prices versus calls examines the pricing of "skew", bearish puts that are "out of the money" or not yet profitable, versus calls that are similarly out of the money. SPY November monthly 122 call volatility is at 21 and SPY November monthly 118 put volatility is at 23, suggesting traders leaning towards near-term bearish hedges.
The PowerShares QQQ Trust (QQQQ) volatility trends lower as it closes in near its three-year high of $55.07, closing up $0.65, at $53.67. Overall put volume of 446,000 contracts compared to call volume of 236,000, with January 50 puts as the most active series. November volatility suggests traders are pricing decreasing price movement.
The following economic data are expected to be released on Friday: **Employment Situation** due out at 8:30 a.m. EDT, Pending Home Sales at 12:30 p.m. EDT and Consumer Credit at 3:00 p.m. EDT.
Notable companies reporting before the open include: AIG, AMT, BZH, CVH, DISH, FIG, FWLT, HSBC, LINTA, PXP, RBS, THS, TM, TW and YRCW.
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