Friday, October 17, 2008

Money Markets Show Significant Improvement, Will Volatility Finally Subside?

I am hearing from my sources that money markets are showing significant signs of improvement today.  Three-month Libor has dropped by over 20 basis points from last night's fix and the TED spread is totally cratering (wide=bad, narrow=good.)  For those who are not intimately familiar with the money markets, they are akin to the basic plumbing of the financial markets.  Trillions of dollars of simultaneous stimulation by governments around the world is finally starting to work.  Since stocks tend to lag the credit markets (as evidenced by the fact that it took a year for the stock market to figure out the complete and total debacle occurring in the bond market), I suspect that it may take some time for the news to filter through and the for the panic to subside.  The VIX is still trading over 70 although down from its peak of 80.  These are still incredible levels and I suspect that the VIX will start to decline.  To all of the options traders out there, I wish you a happy expiration Friday.  It's certainly been the most incredible options expiration cycle I have ever witnessed in my life, and if you are an options market maker and you're still standing after this month, Congratulations, you've earned every penny.  In honor of those that made it through the panic, I offer a video for your amusement.  The following is the layman's version of what it must've been like to trade on the floor of any exchange in the past two weeks: 

1 comment:

A said...

Thank you so much for your daily commentary on the stock market! Keep it up.