Condor Options

Very strange and worrying sign today: the credit markets are finally starting to calm down, but we aren’t seeing the expected correlative pop in equities.  MS is down 41% at the moment, and GS is down 22%, and we just made a new low for the week on very strong volume.  The Fed is looking spent, S&P is talking about the US government’s AAA rating being threatened, nobody seems to want to pony up any more cash, etc. etc.

This may be one of those times where historical precedents and tightly-wound indicators just cease to become useful.  We aren’t so interested at ooing and ahhing at the nominal VIX number here, as if a reading of 40 carries that much of a different connotation than a reading of 50 would or 30 did.  Frankly, we are surprised that VIX isn’t already at 50.

All these conflicting signals would seem to increase the odds of more drama on expiration Friday, and adding all that short gamma into an already freaked out market could be like bombarding a forest fire with drums of lighter fluid.

We’ve posted our action plan going forward on the members-only blog.

[UPDATE: Of course, before we could even publish this post, the markets made a large swing higher on good volume.  That just makes the situation more tenuous.]