Condor Options

So, the markets were bordering on sane and orderly yesterday; thank goodness we had a massive 200+ point Dow swing in the final hour of trading to keep things normal, that is to say, inscrutable.

Actually, there was some real news that drove this buying: apparently there’s a deal in the works to bail out Ambac, one of the two monoline insurers that have been in the news recently. The real questions this deal raises are: 1) does even a completed and robust bailout mean all that much for the broader economy; and 2) does a bailout warrant the rally we saw late today? If the answer to either of those questions is negative, then of course we can expect to give back all of yesterday’s rally, and then some - it’s just a matter of timing.

Intraday volatility indexes were worth watching: during the morning selling, all the indexes kicked up across the board - which is notable only because there have been so many instances so far this year where precisely that sort of “predictable” relationship between selling and volatility hasn’t been observed. After the last hour’s rally, all of the volatility indexes (VIX, RVX, VXN, VXD) are now below their 10 day moving averages, which isn’t a tradeable phenomenon, but is still significant.

Bespoke has some interesting details on the rally participation.

One other technical point worth mentioning: the wedge or triangle or whatever that everybody and his brother have been watching was broken on Friday; the rally retraced right back up to the bottom trendline. Not necessarily a great time to be a bull - but we’ll leave the heavy duty prognostication to the Cramers of the world.

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[tags] markets, rally, volatility, bearish [/tags]