The Timely Denial

On the first day of the ninth month of 2009, US stocks sold off on an increase in volume. The $VIX was up 12%, the dollar up .74% and the mighty five (AIG, FRE, FNM, CIT, C) we’re all off double digit percentages, save Citibank who fell 9.20%.

Several rumors made the rounds today, which were quickly denied. The most timely denial came from the CEO of Wells Fargo (WFC). With about nine minutes of trading left, he came over the wire to reassure the world that the bank will not raise equity in order to repay TARP. Further, he said that when TARP is repaid it will be done in a friendly way and will not dilute holders.

Traders in the pit quickly laughed off the headline and sold Spooz futures into the cash close–and then some in the final fifteen minutes. Just how Wells will repay $25 billion dollars in a friendly, non-dilutive way remains a mystery.

Wells Fargo - The Timely Denial

Another rumor today was the possibility of a large bank default. As I noted on Twitter, if there is to be a default of a large bank, it is  likely a bank in Europe. Default swaps on US financials traded higher last month. Swaps on European banks traded even higher.

No matter, risk (volatility) continues to be underpriced. Some simple regression anlysis on the VIX shows that it is peeking out past the standard deviation models which options are priced. Today was the busiest day of trading I’ve had in a while.

I’m out for now. Time to hang out with Pinky.

The VIX