Link to Recording of Webinar with Bob Lang and Jay Wolberg

I was invited to join Bob Lang (options trading mentor at http://explosiveoptions.net, contributor to http://thestreet.com, and one of Jim Cramer's go-to technical experts on Mad Money) in a webinar yesterday. The recorded video has been posted online for anyone interested.

We had a great conversation, covering a wide variety of topics in 80 minutes. To help you find topics of interest, I've outlined our discussion along with approximate minute marks.

- Show intro (0:00)

- Bob's current market analysis (1:50)

- Into of Jay (10:15)

- Overview of Volatility (13:25)

- Role of actual market volatility in pricing of forward looking volatility (VIX) (17:18)

- What happens during  recent, brief VIX spikes which quickly revert; impact of QE (24:00)

- Common misconceptions of VXX (30:28)

- Reasons for large blocks of VIX calls (36:15)

- Reason why actual volatility may be higher than implied volatility (39:40)

- Reasons for a rising VIX while the market is rising (41.45)

- Likelihood of seeing a VIX in the 90s again (45:00)

- Reasons for current low VIX regime (47:50)

- Recent pattern of buying XIV on dips and likelihood of continuation of this pattern (51:05)

- Letting data guide trading decisions (53:25)

- XIV technical analysis -- importance of 200-day moving average (54:40)

- XIV indicators (57:30)

- Possibility of rally in XIV in today's market & levels to watch for Friday (1:00:10)

- Do VIX levels have influence on whether equities go up or down (1:02:00)

- Preparing for Black Swan events (1:03:45)

- Current decision making for trading XIV in market Friday (1:08:00)

- Signals for start of new rally in XIV (1:10:30)

- Why Thursday's move in XIV was an indicator that VIX was overbid (1:11:45)

- Tour of free resources at http://tradingvolatility.net (1:14:00)


If you are interested in learning more about trading options from a technical expert, check out Bob's website at http://explosiveoptions.net/ and follow him on Twitter at @aztecs99.

VIX and SPY Show Positive Correlation For 4th Day In A Row

VIX Futures down slightly today, but remain largely unchanged at the close for 4 days now. The S&P pushed up to within a point of new all-time highs during the day but VIX futures diverged as can be observed in the intraday SPY arbitrage model.

With the VIX futures term structure mostly stationary the spread for the front two months remained at -0.85 making for a roll yield that isn't benefiting XIV much (this lack of movement has also resulted in a mostly stationary VXX Daily Forecast).

Spot VIX also diverged from its normal inverse correlation to the SPY again, making it 4 days in a row or positive correlation. I'd love to see someone run through the data on this to see when the last time was that this happened (typically positive SPY-VIX correlations are negative for the market in the following days).

VIX remains 5.6% below actual market volatility over the past 30 days (HV21 at 14.53) resulting in a continuation of a negative risk premium. While this is unusual it's not unheard of, especially after a recent spike in VIX like we saw in mid-April. If we get a few more low volatility days in the market HV21 will come down to about 13.75 by Thursday.

The daily SPY arbitrage model is still holding a pretty wide spread as well:

Given that the usual correlations seem to be temporarily broken and the contango spread is neutral it seems best to continue to wait it out a bit for a more profitable setup. Alternatively, if I owned XIV/SVXY I still think it's a good idea to pick up some cheap VXX calls as I mentioned via Twitter last Wednesday.


UPDATE
Performance of S&P 500 after 3 or more consecutive days of positive SPY-VIX correlation, from 3/2004 to present:

VIX Futures Weekly Wrap

We saw an unusual week of positive correlation between VIX (+3.5%) and SPY (+1.3%), a continuation of a daily occurrence of positive correlation that I identified last week.  Early in the week we also saw VIX hit its lowest close since 4/20/2007 at 12.43 before heading higher over the rest of the week.

VIX Futures Weekly Performance:

Feb-13	Mar-13	Apr-13	May-13	Jun-13	Jul-13	Aug-13
-4.1%	-7.4%	-6.7%	-5.9%	-5.7%	-5.5%	-5.3%

Front month (February), down 4.1% to 14.05, was not able to match the losses experienced by other months despite pressing down to new multi-year lows of 13.65. This resulted in a flattening of the front side of the term structure curve, reducing the negative roll yield of VXX.

Based on these changing conditions and other indicators I established a long position in VXX at $22.70 near the close on Wednesday and I continue to hold it, although I will likely ditch it Monday if it doesn't get going.

Weekly scoreboard for VIX Futures ETPs vs S&P500:
- XIV: +4.2%
- ZIV +6.4%
- SPY: +1.3%

And the daily close of the VIX Futures term structure this week:

Daily Divergence in VIX-SPY Correlation

Today the market experienced a divergence in the typical negative correlation between SPY and short-dated VIX, with SPY +0.65%, VIX +1.1%, and front month VIX futures +1.3%.  This often happens when the SPY hits new relative highs (a 5-year high for SPY in this case) as traders start buying protective puts to lock in gains, and around options expiration days (tomorrow).

From here we're likely to see more buying of short-dated VIX over the next few days as it continues to adjust, as I wrote about two days ago. This would result in a lower XIV and higher VXX. I don't typically recommend buying VXX and holding it overnight, so at this point I'm just looking for my signal to buy back XIV at a lower price.