Tag Archives: option skew

Market Mayhem: A Rare View From Global Macro Guru

One needs to have ‘been there and seen that’ for at least twenty years in order to have been “loaded for bear” in advance of this morning’s equities market rout. At least one of the folks who MarketsMuse has profiled during the past many months meets that profile; and those who have a true global macro perspective such as Rareview Macro’s Neil Azous have pointed to the credit spread widening during the past number of months as a prime harbinger of things to come. And so they have…

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Last night, Neil Azous published one of his finer commentaries in advance of this morning’s global equities market rout and incorporated a great phrase:

“Man looks in the abyss, there’s nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss.” – Lou Mannheim, Wall Street, 1987


The highlights of last night’s edition of “Sight Beyond Sight” are below…

  • Big Picture View
  • S&P 500 View
  • Asset allocation Requires Swimming Against the Tide – Low-to-Negative Downside Capture
  • Long German versus Short US Equities (Currency Hedge)
  • US Fixed Income – Short 2016 Eurodollars
  • Long European & Japanese Equities (FX hedged), US Biotech and US 10-Yr Treasuries
  • Long US Energy Sector
  • Volatility – Sell Apple Inc.; Not the S&P 500 or VIX
  • Harvesting S&P 500 Index Option Skew
  • Long Agricultural Call Options
  • Long US Housing (Hedged)
  • Technical Mean Reversion – Short EUR/BRL
  • Long Euro Stoxx 50 Index Dividend Futures (symbol: DEDA Index)

To read the full edition of the Sight Beyond Sight special Sunday (Aug 23 2015) commentary, please click here*

*Subscription is required; a free, 10-day trial is available

Neil Azous is the founder and managing member of Rareview Macro, an advisory firm to some of the world’s most influential investors and the publisher of the daily newsletter Sight Beyond Sight.

‘The Skew is the Clue”; Options Mart Pros Point to Excessive Market Optimism

wsjlogoCourtesy of Kaitlyn Kiernan, Wall Street Journal

Oct. 29, 2013 7:37 p.m. ET


The latest record run for U.S. stocks is sending up caution flags in two corners of the options market that rack investor sentiment.


Hefty demand for options that would benefit from a further rise in stock prices recently sent a measure called “skew” to its fifth-lowest reading of 2013. A lower skew ratio shows relatively high prices for calls, options that convey the right to buy shares at a certain price. Some investors say the reading, which reflects the ratio of bearish option prices to bullish ones, points to excessive optimism in the market.

The move put the gauge on the brink of crossing a level that twice this year has preceded stock-market declines of at least 4%, options watchers said.


skew is clueAt the same time, the markets’ so-called fear gauge rose on Tuesday even as the S&P 500-stock index rallied to its third consecutive record close, rising 9.84 to 1771.95. The Chicago Board Options Exchange‘s Volatility Index typically falls when stocks rise, and vice versa. The divergence is unusual and shows that new highs aren’t being met with the typical investor calm, investors said.


While the options readings alone are hardly enough to provoke worry among stock-market strategists, skeptical investors are picking up on numerous signs of what they term froth in the stock market. On Tuesday, the Dow Jones Industrial Average and the S&P 500 hit record highs on the same day for the first time since Sept. 18, with the Dow advancing 111.42 to 15680.35. Continue reading

VIX Higher, SPX Higher; 30 Yr T touching 3 (percent)..Meaning??

Everything went higher today (despite the data during the last minutes into the close); stocks, bonds and fear; a somewhat unique combination of ups. When noticing today’s relatively rare direct correlation between equity market volatility (aka VIX), equity indices and “safe haven” US government bonds, option market veteran David Robbins of WallachBeth Capital says,  “The wall of worry is simply growing taller.” 

With the benchmark  barometers DJIA and SPX continuing to climb past technical and psychological barriers, and now only single digit percentage points away from all time market highs despite the still-fragile (albeit somewhat improving state of the US economy), “its always worth worrying” said Robbins, perhaps explaining the subliminal spikes noticed in outer-month VIX options, and in particular, put options.

Added Robbins, “The skew is always a good clue, and if you look at April and June VIX or VXX options, its clear that market pros are re-framing;  the risk of a market pull back increases each week the equities market goes up.  There’s always a black swan out there flapping its wings,  but its simply more expensive today to hedge that risk than it was last week.