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Lots of wild action across markets today:

  • VIX – CBOE Vix index – With equity prices sadly wilting by noon on Friday, investors were threatening to completely reverse Thursday’s giddy 2% advance. Traders were despondent after a 0.5% drop in consumer spending last month, which soured the tone following Thursday’s stimulus-stuffed GDP gain. The fear-gauge expanded by 8% to 26.70 as a result and one large options player appears to have placed a trade suggesting that volatility will be omnipresent – at least through year-end. The investor sold 10,000 December expiration puts at the 25 strike for a 1.75 premium, while buying half as many puts in the January expiration at the same strike. If the underlying Vix index settles at expiration above a value of the 25 strike price, the puts would expire worthless. This suggests this investor sees a rocky close to the year with volatility remaining elevated. The purchase of 5,000 puts for a 1.95 premium expiring 30 days later suggests the investor sees a calmer start to next year.
  • Copper prices were down 2.44% as investors grow increasingly concerned about the state of the global economy.
  • MicroStrategy soared over 20% on the session.  As we pointed out yesterday, there was some very curious call buying in the name just yesterday.
  • CitiGroup upgraded Toll Bros from Hold to Buy.

Broadly negative action in the credit markets.  CDR has all the action:

Spreads were broadly wider in the US as all the indices deteriorated (as IG and HY closed at their wides with the former making its largest jump wider since 10/01). IG trades 7.8bps wide (cheap) to its 50d moving average, which is a Z-Score of 1.3s.d.. At 109bps, IG has closed tighter on 63 days so far this year (217 trading days) and we note that the distance to the average is getting close to its largest since this rally began (a critical break over 9-10bps above the average would suggest we are in a new era. Yesterday’s crack of IG not being able to break the 50-day average (while technical nonsense) is notable in that we have not seen an upside break and unsuccessful test of the average since the March rally began in credit.

Indices typically underperformed single-names with skews widening in general but were really just playing catchup from yesterday’s moves as from Wednesday’s close single-names are actually underperforming suggesting some more weakness is due in the indices. The names having the largest impact on IG are Constellation Energy Group Inc. (-22bps) pushing IG 0.17bps tighter, and International Lease Finance Corp. (+39.58bps) adding 0.25bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 0.42bps tighter, and International Lease Finance Corp. contributing 1.07bps to HVOL’s change today. The less volatile ExHVOL’s move today is driven by both Constellation Energy Group Inc. (-22bps) pushing the index 0.22bps tighter, and Wells Fargo & Company (+11.25bps) adding 0.12bps to ExHVOL.