Micron trades at $970. The calls sitting 330 points out of the money cost $10. The puts sitting 270 points out of the money cost $4.
The market is pricing double the risk of a melt up over a crash. I call that trading stupid.
That inversion gets wider the further out in time you go. Micron does not report until September 23rd, so this has nothing to do with earnings risk.
The reason it exists is simple. Nobody is paying for downside protection anywhere in this market.
The VIX closed at 14 today. You have to go back to Christmas Eve to find a print like that.
S&P futures traded 800,000 contracts. That is the lightest volume since the holidays, and it is garbage.
The indices are stuck. The advance decline line has been a pure 50/50 slop fest all week, so the index products sit in complete paralysis while individual stocks rip in both directions.
Google exploded higher a week ago and now sits at the lower edge of its expected move. Amazon did the same thing. JPMorgan cracked the upper edge.
The movement is there. It just is not in the index.
Underneath all of it, the credit market is screaming and nobody is listening.
Here is what I broke down in today’s session:
- Micron sits at $970. The September 18th 1300 calls trade for $10 while the 700 puts trade for $4. The 25 delta is inverted by five points and the 10 delta is inverted by seven.
- In the spiders, 28 day options price 10 delta puts near 16 vol against 10 delta calls near 10. The nine day skew reads 2.89, which means almost no downside risk is priced at all.
- The 10-year sits at 4.7% near the top of its range and TLT cracked to new lows. The Treasury’s 30-year auction this week paid the highest yield since 2001.
- The mad dash for cash has not stopped. Intel upsized its bond offering to $20 billion, AMD did $5 billion today, and NVIDIA put up $500 billion in lines of credit with KKR and other firms.
- Rate hike odds collapsed. September now shows roughly a 70% chance of no move, and the curve prices about one hike through year end. Two weeks ago a top Bank of America analyst called for three.
Next week the SPX prices an $83 expected move on a $7,800 product. That is a 1% move in either direction, and it is anemic.
I am taking the over. Monday vol sits at 6%, so do not sell options in the short duration. There is nowhere for that to go but up.
The last two weeks of August run hot historically. September is the most volatile month on the calendar, not October.
Puts are cheap. Skew is inverted. The window to own risk at these prices does not stay open forever.
