Wednesday, January 18, 2006

Yahoo! Armageddon

VIX is at 12.43 as of this writing. Funny that I mentioned just a few days ago that a level of 13 would be significant.

YHOO blow up wasn't altogether unexpected (even though we did get annihilated on YHOO spreads) and the ensuing market reaction wasn't unexpected either. In fact, YHOO in itself is not at all significant. Now, YHOO's impact on the market is far more interesting as the entire universe somehow perceives YHOO's news as the next Armageddon.

I respectfully disagree with the universe.

I am not a fundamentalist so I won't go into whether YHOO's report was in fact good or downright bad. But I am a "sentimentalist" and regardless of the underlying numbers it is clear to me that the market pays far too much attention to that company.

Which creates an opportunity.

First of all, VIX is "overbought", so statistically, this is definitely a buy signal (I don't care about if's, contexts, etc. Analysis paralysis is not my game.) However, from a fully proprietary standpoint, I'll say that the NDX-100 is down too far too fast, given the recent rally.

So, my bet is, we're going higher from here - at least for a while. I'll even add that it's a rare opportunity to make 10% in the next three days as theta decays at super-exponential rate.

Cheers,
/Dmitry

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