Live on Bloomberg TV

00:00It's been hard to get a sustained sell off on any news for quite a long time now. Does that surprise you given the intensity of the run up . It does. But you know in some ways I'm not surprised by what also happens with volatility on it. You see these big bursts . Yeah pockets of volatility. And then as quickly as they come . You get realized volatility disappearing. And so we've gotten to a point where tail hedges are very attractive. But we've known that for a really long time. And yet what are people doing. They're selling volatility. Why. I mean it's like the music hasn't stopped yet. It's not time to grab your chair . Right. And that always makes me nervous. But you know derivatives people tend to kind of be a little bearish too. So . All right. So there's that to consider. Look we want to bring you into the conversation now because when it comes to volatility people see reason to be concerned. The next couple of months out even if right now they think everything's OK . Yeah well I think Tammy's point like it. See it's the confluence of the two. People feel comfortable selling short term bull over and over and over. And you know the dealers work in kind of mitigating and dynamically hedging that flow with something that then keeps realized volatility maybe lower than it would be in the absence of those sales when you look at the VIX curve. Now what it is saying is the February VIX futures curve which becomes the front month as of tomorrow morning . It's been sticky high for quite awhile while it's been higher than you would expect given that it's going to be an earnings season. And given how low realized vol has been. Traders that I've been speak to have been attributing that to Super Tuesday and the caucus is just the fact that at expiration the you know if you were getting the February VIX taking delivery of the options strip you'd be getting would include something that would capture Super Tuesday. So we're going from a VIX curve that's going to be very very steep. There's about a two vol gap over to big gap between front month and second month now to tomorrow one that's going to be just half a point. So you know we talk about the inversion of the VIX curve as this kind of you know fear event. You know some people use it to get into the market. Your time to sell ball order. People also use it from the other side of time to to cut and run. The threshold for VIX futures curve inversion gets a lot smaller. Tomorrow .

No schedule data available.

Super Tuesday Hedging Shows Up in Volatility Curves

Amy Wu, RBC Capital Markets equity derivatives strategist and Bloomberg's Luke Kawa talk about why alarm bells are sounding in volatility markets. They appear on "Bloomberg Markets: The Close." (Source: Bloomberg)

More From Bloomberg Markets
All episodes and clips