“Risk on” getting riskier.

The VIX is the implied volatility in S&P 500 index options for the next 30 days. The VXV uses a 93-day time window.  So, the VIX / VXV ratio is the measure of the vol curve, short term vol / longer term vol.

Possible explanation for this extreme low today? Selling calls for levered longs.

We have massive group think going on in the stock market, with Apple stock as evidence.  At the end of Q1 of 2011, 173 hedge funds were long AAPL.  End of Q2, 181 longs.  End of Q3, 209 longs. End of Q4, 216 longs.

Sterilized QE was announced the day after the stock market had a one day, modest correction.  As the economy fails to improve, unemployment remains high, and we have an election coming up, printing our way to prosperity is the policy of choice for the FED.  They wouldn’t be pursuing it if they didn’t think the system were in trouble.

Now, it looks like traders are trying to squeeze returns from their longs, especially as the stock market seems to be running out of gas. We all know the FED will QE to infinity, but nobody believes that the market is healthy on its own.  So, buy stocks, but sell calls.

 

 

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