COMMENT – SPX nears correction zone, VIX lottery tickets in vouge
In early European trading S&P500 futures were down some 20 points with little news and everyone started asking around what they had missed. It turned out somebody didn’t know something that everyone else had missed out on but it was a reflection of intensifying concerns over the rally. The consensus is still that things are overbought (even massively overbought) and that we are due for a correction. However, whether it’s the short squeeze on TSLA or continued highs on tech stocks the correction has proved elusive.
A trend channel of the S&P500 has been active since mid-October 2019 punctured briefly by a 2-day correction in early December it continues to provide a good guide to price action. The resistance zone is not reached until above 3,295 and a correction only starts to look half serious if we puncture 3,240/45.
The Feb VIX futures are trading at a 2 vol premium to the soon to expire Jan futures but the real action has been on the OTM VIX calls.
Starting last week there has been a big buyer of 24% and 25% strike VIX Feb calls with the surrounding strikes (23% and 26%) seeing very little action. The chart below shows the change in open interest since the start of the year and highlights the increase in interest on the 24% and 25% strikes. Cheap lottery tickets for someone looking for the correction to surprise but the BTD buyers are still looking to get in. /kl/db
(Reporting by Divyang Shah)
VIX open interest : https://tmsnrt.rs/2QRiMLv