Another nail biter today as the markets set up to presumably follow the late day capitulation selling seen over the past few days. 12:30 approached and, if you were watching the option chains, you saw the offers lift in both the puts and calls without any equity action .... and then, as equities moved forward, the put premiums plunged. Traders had been conditioned like Skinner's rats to expect the late-day sell off, and I suspect there were more than a few transfixed by today's market behavior. Carl Futia has some interesting forecasting charts on the current state of affairs and I think they are worth a look. Today's Qs volume matched last Thursday (318M) and it remains to be seen how much of the 44M shares traded in the final 30 minutes was short covering (the last 10 minute bar of the day had a volume of 15M and a huge range of .48).
The VIX gave a dazzling performance ... climbing through 26 and then free falling almost 3 points to close at the prior high. The VIX is currently in uncharted territory and while there are precedents for these levels, the fact that the VIX remains close to the upper band suggests this cycle is not done. The typical pattern after a solid close above the bands is resolved on the 4th day (today), and although the markets did show impressive gains into the close, the VIX is still in nosebleed territory so caution is advised, as always, prior to initiating anything other than a short term position. Aain the VIX has reverted to NOT overbought status.
I was able to get off several good trades today ... shorting WM and TOL out of the box as the financials and housing continued to deteriorate (wish I'd bought AHM, but I was dinking around with other stuff and missed that swoon to .85), and then covering those shorts at the first turn. Later, as the XLEs began their slide I buy/wrote the near 68s at 68 for a 2.15 premium, which is a good 3% return for 17 days. Look at the 5 minute bar hairy bottom in the XLEs at 12:30 as the XLEs displayed a wide squat bar just below S2. Picture perfect buy setup.