Implied Vol Is Significantly Higher Than Historical Vol, A Warning Sign

S&P 500 (SPY)

Stocks advanced on Tuesday, recovering all of Friday’s losses, while the Nasdaq surged by over 1.5%. There was no particular reason for today’s move higher, and honestly, not much of anything has changed over the past few days. So the S&P 500 finished the day around 3,800, while the Qs finished around $317.50.

I forgot about Yellen’s Senate testimony calling for more government spending.

VIX (VXX)

The strange thing is that the VIX doesn’t drop. Maybe tomorrow is when the VIX finally cracks 20? Will it be after the swearing of Biden that all uncertainty is priced out of the market? I don’t know. Seems hard to believe, but I can’t understand why with the S&P 500 trading at all-time with monetary and fiscal policy flowing, why the VIX is trading above 20. It should by all accounts be at 12.

You can even make a case to say the VIX is actually trending higher, making a series of higher lows.

I took the 30-day implied vol and 30-day historical volatility data from Trade Alert, and then I simply created a spread. Interestingly when the IV was about 10 percentage points or more above the historical vol, strange things happen. Like the rocky and turbulent period in 2016, January 2018, the fall of 2018, August of 2019, December of 2019, June of 2020, September of 2020, and October of 2020. All of those periods saw a pretty hefty pull back and certainly lots of volatility. So far, the only period that hasn’t, yet, is January 2021.

I will study this a good deal further.

Micron (MU)

Micron had a big day, climbing nearly 6%, and breaking above resistance at $85, and now on pace to climb to $88.25.

Roku (ROKU)

Roku was up today, and the valuation on this company has now crossed $50 billion. This for a company expected to have $3 billion in revenue at the end of 2022. If it does $5 billion, it would still be overvalued. If it $10 billion, then we could make a case for a fair valuation. Let the options related squeeze continue, that all this is, right, you do know that? – (Should be free to read – Roku: Just When You Thought The Insanity Couldn’t Get Worse)

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Disclosure: Mott Capital Management, LLC is a registered investment adviser. Information ...

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