Speak of The Devil...

There was a sell-off on the market yesterday, January 13, 2014. It did OK for a bit in the morning, but then everybody ran for the exits. It may even continue today. They have been warning that it was overbought for a month now, but it finally happened. Why? Who knows! If we did we'd be so rich that we would be too busy at the morning Rolls Royce Demo Derby to Blog about it here, and looking at picking up a new one for the afternoon version of the same thing. That's because by our nature, being reputed suckers for punishment, we would crave some more in the absence of any.

The VIX, sometimes referred to as "The Devil," by options traders, reared its ugly head for a bit. But just Hold Your Horses for a second. If it is derived from the SPX, isn't that a case of the Cart driving the Horse? Funny you should mention that. Several months ago, a couple gurus were talking about exactly that on some trading webinar. VIX products have been so popular through all those Volatility ETF's that the weight of them itself can actually smooth out or steer the market at times now.

It has served to quell the fear investors have somewhat or the rickety nature of the markets. Whenever there is a correction, they can now go after the fact, and sell some of that high volatility to get some of it back. And this is where the plot thickens. Well, I see the markets are opening again... What will today hold? We will see...

Well it went back up. The VIX went up 10%, and has given almost all of that back in less than a day. It went most of the way to where it was. But I bought the dip.  Technically, I sold call options on a double short VIX tracking ETF  at the peak instead, because try as they might, they can't finagle the spread enough to bake in the contango of all their adjustments. Likewise, I sold them far enough into the future that I can hold them, taking advantage of the time volatility premium, lousy slow chart updates, and gritting my teeth, until the inevitable happens and time works its magic for us, presenting an opportunity to cover them when they are a lot cheaper, hopefully before the next downturn.

Perhaps that is what the banks do under the hood with our money. It makes a lot more than we do with it when we entrust it to their non redeemability. But gotta go... I think its Mercedes demo derby day today with the back office bankers... TaTa! Yours adjectively, Robin xoxoxo