Vols on the run

Vols are continuing on their tear today. While the VIX is up modestly to 16.5, vols across individual equities feel like they do when the VIX is spiking into the 20's. The financial are once again leading the charge. Anything with a hint of sub-prime exposure is seeing volatility pumped even higher from their already lofty levels.

A year ago, it was interest rates that had the market's attention. Before that, it was the spike in commodity prices, copper in particular. The previous September (2005), it was Katrina and the impact on energies. These mini-panics come on, ricochet around the echo chamber for a few weeks or months, driving up volatility to irrational levels, and then peter out.

If I had to predict, the current sub-prime mania will bubble along until August when the market goes on vacation. Hopefully, the echo chamber will move on to some new hissy fit when everyone comes back.

Irrational exuberance meets unconstrained fear

We're living through some of the craziest markets I've seen in some time. Despite the rash of bad news about the economy in general - terrorist threats, commodity prices, inflation, housing - the market keeps pushing out new highs and the VIX is at relatively low levels, hovering around a 15 - kind of a lime yellow if I had to color code it. Yet, in a few specific names, we're seeing volatilities explode for no apparent reason. Particularly in financials and tech stocks, demand for options are outstripping supply and sending option prices into the stratosphere.

Mid-term vol in AAPL - which typically moves around a 35%, is trading well into the mid-40% on no particular news. CROX - maker of the kid-popular Crocs sandles, is hovering around the 70% vol level and MBI, a well-capitalized bond re-insurer is still battling perceptions that it is over-exposed to sub-prime risk.

Most of the time the markets make some sort of sense. Today is not one of those times.

iPhone & Wifi = Cats and Dogs?

Apparently the iPhone doesn't play nice with Wifi. I may have experienced the bug reported here last night. While I was playing around with my iPhone in the living room, the OptionsGeekette was repeatedly bounced from her wifi connection on her laptop. I think Apple needs to jump on this one.

TKO'd at EBay

Twice in the past month I have been notified by EBay that my seldom-used account has been compromised. Both times, there was no obvious damage - e.g. some spam sent from my account from the first occurrence, nothing on the second - and EBay was quick to shut down access and then re-instate me when I contacted them. However, I'm obviously concerned that my account could be commandeered twice. The first time, I assumed that someone had brute forced my password somehow. However, the second time around, I used a cryptographically strong-ish password. Needless to say, I'm pretty sure I didn't mistakenly give away my details to a phising site somewhere (I was careful to check the RSA credentials of the EBay rep I chatted with both times). In the end, I requested that my account be terminated as I don't use it much anyway.

Here are the scenarios I foresee, ranked in order of likelihood:

1. EBay's intrusion detection algorithm mistakenly re-triggered on the old spam in my account from the first occurrence,
2. There is some flaw in my firewall/security/virus checker and my home machine from which I log-in to EBay has been compromised,
3. There is a flaw with EBay's security and their accounts are at risk, and
4. During an episode of sleep walking, I logged into a phishing site and gave away my account details.

The EBay chat rep assured me it couldn't be scenarios 1 and 3. Anyone else experience a similar issue recently?

In a FIX

I have spent the past week+ trying to implement a FIX connection to a new order venue and I'm still struggling with it. While I have great respect for the ubiquity of FIX, I find it an extremely frustrating experience. Nearly every provider implements their own dialect of FIX, forcing time-consuming tweaks to get the language just right. And of course, encountering a bug in production can be devastating, often incurring lengthy downtimes, or, even worse, trading errors. Yipes.

We use the QuickFix engine and it's proven to be reliable and attractively priced (i.e. free). What's more, because it's open source, it's not difficult to track down and resolve the inevitable compatibility issues that arise during acceptance testing. Well, not any more difficult that any other C++ application would be a similar situation (see my previous comments regarding C++ vs. C#).

Drumsticks for an iPhone?

At the Police concert last night, I tried (unsuccessfully) to use my iPhone to take a picture of the warm-up band, Fiction Plane as they mingled with the audience after their set. Drummer Pete Wilhoit was so impressed with my new toy that he offered me his sticks for it. I declined. Nothing against Fiction Plane - they, quite literally, rock. But this is my iPhone we're talking about. Three words Pete:

1. Cold
2. Dead
3. Fingers

Here's the spectacle in it's full glory. For three old farts, the Police can still make some sweet tunes.

Vols coming back in today

As predicted, the market seems to be quieting down a little this morning. With the Dow up 90+ points, it looks like folks are willing to wait and see before panicking. Names with subprime exposure are still high, but for now the market is willing to isolate those risks.

So it seems we're not the only ones feeling the pain from all of the insider trading that's been going on recently. Everyone I know agrees that scummy option paper has never been so prevalent as now. And it's not just the old standby of scooping up the front-month ahead of an announcement. The tricky tricksters have even caught onto the trick of selling longer term options ahead of a take-out with little or no premium so that the option's volatility value goes to zero. This type of deal is, in theory, easier to hide from market surveillance. Just as scummy, nonetheless. I can't understand why anyone would want to risk going to jail just to earn a few extra bucks. It's not worth it, people. The paper trail is there forever and you will always be found out.

iPhone activation hell

So I waltz in and out of the local Apple store last night with neat little iPhone bag in hand and I'm feeling pretty smug. Pure bliss.

Eighteen hours later (and counting) and some of the bliss has worn off. Like many, during my activation, I am told that my activation will take more time. How long? Doesn't really say, but I will be receiving an e-mail when my phone is ready to be activated. I'm switching my number from TMobile, which scattered reports have fingered as a potential source of trouble. After six calls, I finally got through to an AT&T service rep, who helpfully informs me that somehow my IMEI code was listed incorrectly in their system. Not sure how that can happen since it is supposed to be passed through automatically. Anyway, she re-requested the activation or something so now I'm supposed to wait 24-48 hours before checking in.

What a let down. I haven't used AT&T for cellular service before - I'm feeling like they might be the weak link in the chain.

Update:

So ten minutes after posting yesterday my hoped for email arrived and I was admitted into iPhone-land. The bliss is back. What an amazing product. Groundbreaking. Landmark. The apogee of industrial design for this young century. There are a bunch of ways it could be improved - faster network, IP phone calls, ability to run your own programs, but, all in all, it's the kind of product that makes you wonder how everyone else could have gotten it so wrong for so long. Wow.

Volatility weirdness

You wouldn't know it by just looking at the VIX, but volatility was on the march today. While the VIX advanced a point to 16.5, equity option volatility was sharply higher across the market on the last day of the quarter. Much of that may be due to marking - i.e. position traders pushing around the bid/ask prices to get favorable closing marks for the quarter. However, there's also a definite whiff of sub-prime fear permeating the market, just like last Feb/Mar when we had the spectacular New Century Financial blow-out. Vol seems most elevated in financials, insurance, construction, etc., just like before. However, tech seems to have a significant spike as well - that may be due to the iPhone launch and what is says about the power of blockbuster products.

At some point, the market is likely to settle down into the summer doldrums. Also, there are only 3 1/2 trading days in the US next week (July 3rd is a half day). You would think that would bring vols back in a little. We shall see.

What's "local time" on the web?

According to the Apple marketing machine, the iPhone will be available at 6pm "local time" today. However, what does that mean if you want to go online to buy one (or two)? According to a very helpful chat rep at the online store, that means 6pm PDT.

I guess we'll find out how well their web infrastructure was designed.