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VIX Options Trading Spikes Amid Mueller’s ‘Monkey Wrench’

It's the whole constitutional crisis thing. And "50 Cent" is back.

Well, market participants are scrambling around on Friday in a futile effort to try and determine how to handicap the Flynn bombshell while simultaneously trading the tax news.

“The [Flynn] news doesn’t impact the future of tax legislation,” KBW’s Brian Gardner insists in note out this morning, adding that “Flynn [will have] little, if any, impact on policy, especially in the short term, with the tax bill likely on track to pass the Senate, regardless of Flynn outcome.”

Gardner also contends that irrespective of what happens with Flynn, the political calculus around deregulation will remain unchanged next year.

 

That’s probably true, but the very fact that people are debating this speaks to the seriousness of the issue. Flynn potentially testifying against Trump himself is big news and it’s being treated as such by markets.

The VIX spiked as much as 29% on Friday, the biggest intraday leap since early September.

VIX

Amid the drama, VIX options trading exploded to more than four times the 20-day average, Bloomberg notes, with one investor apparently rolling a bullish December VIX position to January.

VIXAverage

The VIX is up five days in a row. As Bloomberg’s Luke Kawa details, “the Elephant” and “50 Cent” are apparently back, with the former having caught a serious break on Friday morning:

First, the trader who’s known as the Elephant for making big moves in the VIX — but who’s been surprisingly quiet in recent weeks — returned with a vengeance to start December, buying and selling more than 2 million contracts Friday to continue betting on a modest rise in the Cboe Volatility Index. That’s three times the average daily volume for all VIX options.

The Elephant caught a major break thanks to the sharp retreat in the S&P 500 Index following reports that former national security adviser Michael Flynn would implicate members of President Donald Trump’s transition team in the probe into Russian meddling in the 2016 election.

As far as the doomsday vehicles go, XIV is having its worst day since everyone thought Gary Cohn was going to resign in disgust back in August. And that’s ironic because the reason the market was so spooked that day had everything to do with the assumption that if Cohn was out, the tax plan was dead. And now here we are as close as ever to getting something done on taxes, but with Trump once again indirectly throwing a monkey wrench in the whole thing:

XIV

And speaking of “monkey wrenches,” TD’s Mark McCormick wants to talk to you about them. To wit from an interview with Bloomberg:

The Russian investigation, which appears to be moving closer to the president, may throw a monkey wrench into tax reform and potentially much more.

The second big concern is beyond tax reform and broader implications of the administration and other spillover effects. This would reinforce the pullback in the USD just on the political uncertainty alone.

Right. And look, with all due respect to everyone who is confused as to why anyone would buy/sell on the Flynn news given that the implications are as yet unclear and it has no immediate impact on tax reform, the answer is this: it’s because it moves America closer to a constitutional crisis. If you think Trump is just going to sit idly by while Mueller closes in on him, well then maybe you haven’t been following the President on Twitter this year.

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1 comment on “VIX Options Trading Spikes Amid Mueller’s ‘Monkey Wrench’

  1. Trump was worried about Flynn from the beginning. Soon we may know why, other than the many Russian contacts that occurred despite the WH and transition team repeatedly denying ANY CONTACT. Follow Seth Abramson (@SethAbramson) on twitter for the long blow by blow of how this started and regular updates. From his prospective this portends very bad outcomes but will likely take weeks and months to conclude, not anytime soon as the WH keeps tweeting…

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