VIX9D trade ideas
"It's the holidays, I guess" -Del Griffith 9-day $VIX In FocusIt’s that time of year. Equity markets are often quiet while bond traders are sometimes caught napping on the trading floor. Thanksgiving is historically quite bullish – Stephen Suttmeier at BofA points out that in all years going back to 1928, the S&P 500 has outperformed over this period (markets are closed Thursday, and Friday is an NYSE half day). The average return during Turkey Day week is 27 basis points with the median gain being 0.36%. Returns for the balance of the year are usually strong, too – up 1.4% on average with a 70.5% positive rate.
It’s indeed a sanguine stretch, and I refer investors to the 9-day VIX. This short-term volatility index is the lesser-known version of the 30-day VIX. Making my Monday morning chart rounds, I noticed that the 9-day VIX is just a smidgen from fresh 52-week lows. Zoom out the chart further back, and you’ll see that this volatility gauge doesn’t get a whole lot lower from here. The point? Don’t expect much action on Wall Street this week.
I encourage traders to turn their collective attention to the end of next week and the first trading day of December. That is when we get the first major economic data point for November – the ISM Manufacturing survey. Given a weaker turn in the labor market and last week’s Retail Sales report for October that showed a softening consumer picture, I expect more signs of macro weakness to reveal themselves. Be advised that the November Nonfarm Payrolls report does not come until Friday, December 8.
9 day VIX signal for I.T.Low in markets is setting up nice The chart posted is one of the 9 vix .It is one my tools in my Models to determine market turns . we hit a near perfect .382 at the Peak in vix . I had talked about a level to watch in the single day vix of 18.88 and 19.89 often . I feel we are coming into the cycle the panic scycle were due into sept 21/23 and I feel that the 9/25 was the bulk of the drop I have been taken positions for what I feel is going to be the LAST BEAR MARKET RALLY PHASE. I maintain a view We will see 4731 +or - 13 now for the lasting top . I maintain that oct 13 2022 was wave A of super cycle bear
9 day vix model we should now form a last rally we are now outside the bb bands and we are 55 days from the peak
VIX Term Structure vs SPXVix term structure vs SPX
VIX backwardation on SPX lows
VIX contango on SPX highs
S&P500 - "Fear Index" Singals ShortVIX9D crossed yesterday VIX30D, 3M and 6M. In addition, the price is bouncing off EMA 200. Signal for a potential short. If you pick short set Stop-loss above Ema 200 to close the position in case price goes up.
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THE WEEK AHEAD: RRC, GDX, GDXJ, AND XLIIn spite of various media reports that "volatility is back," anyone who plays the premium selling game knows that it isn't in significant measure. Nevertheless, there is some uptick in volatility as compared to the post-election to March volatility lull, which was a slog to get through for premium sellers who look to capitalize on a high implied volatility environment. That being said, the minor uptick isn't providing candidates for picky premium sellers like myself, who look for certain implied volatility metrics to get into plays.
High Implied Volatility Rank/High Implied Volatility Underlyings
Currently, there is only one underlying that meets my >70/50 rank/implied volatility metrics, and it's RRC with a rank of 98 and a background of 55. It's a land-based oil and gas exploration and development company with an abysmal balance sheet, and it's less than an ideal options play for the impatient, since it only has monthlies to work with. Possible plays would be an Oct 20th 15 short put at the ~26 delta (neutral to bullish), which is currently paying .50 at the mid with a break even of 14.50 or a nondirectional: the Oct 20th 16 short straddle (neutral to slightly bearish) is paying 2.30 at the mid with break evens at 13.70 and 18.30 (I would skew bearish, since we've seen a bit of a Harvey bump in oil prices that is likely to recede in fairly short order) or a defined risk Oct 20th 13/16/16/19 iron fly (neutral to slightly bearish) with break evens at 14.22/17.78, a credit of 1.78, and a buying power effect of 1.22.
Low Implied Volatility Rank/Low Implied Volatility
Currently, XLI, GDXJ, and GDX all have ranks at the very low end of their ranges.
The gold plays are really no surprise there, with gold having ripped up to 52-week highs on risk off sentiment and overall Greenback weakness. Ordinarily, these would basically beg for a low volatility strategy such as a 40 delta/same strike* calendar, but these will not be worthwhile unless you go multiple contracts due to the size of the underlying. Consequently, working something like a 90/30 Poor Man's Covered Put** might be more productive if you've got an assumption that risk on and/or Greenback strength will return at some point and gold will weaken. For example, the bearish assumption Oct 20th 24 short put/March 16th 33 long put Poor Man's Covered Put costs a 7.66 debit/contract to put on.
XLI -- which I honestly have not played much, evokes similar setups ... .
VIX/VIX Derivatives
The first /VX future at >16 (north of where I like to setup up my VIX tent, generally) is currently in January (128 days until expiry). That contact was trading at 16.12 as of Friday close, but it's still a little too far out in time for me to set up a play, since I generally like these with 90 days to go or less. The VIX Jan 17th 16/19 short call vertical with a fairly generous break even at 17.75, is paying .80 at the mid, which is generally what you get out of these VIX term structure plays (between .65 and .85/contract). That being said, the Feb expiry is amenable to laddering out, with the 17/20 paying .77, so I may go ahead and put on a trade if I see little else going on next week, particularly since it's a rollover week, where there might be some temporary uptick in futures contract pricing as the term structure adjusts.
With the derivatives (VXX, UVXY, SVXY), I'm looking for a short VXX/short UVXY entry or an SVXY long entry if the VXST/VIX ratio pops to 1.15 or so. With VXX/UVXY, this will generally mean a 45 days 'til expiration short call vert with the short call slightly in-the-money and the long aspect out-of-the-money such that the spread yields one-third the width of the strikes. With SVXY (an inverse), it'll mean the opposite -- a short put vertical with similar characteristics.
* -- Back month long at the 40 delta strike; front month at the same strike.
** -- Back month long at the 90 delta; front month at the 30.
A Drop In Volatility Often Accompanies an SPX Rally...Then What?There is a strong, negative correlation between $SPX and volatility - which makes sense as we don't need a hedge when conditions are improving. Over the past 48 hours, we had just such a rapid deflation of risk assessed in the short-term implied volatility reading (VXST), so what happens from here? I highlight the instances over the past 12 months where there have been equivalent rapid declines in the 'fear' gauge to illustrate how the S&P 500 responded.
Another Bout of Imploding Risk Premium as VXST TumblesBetween Friday and Monday's implied volatility deflation, we have seen the biggest two-day drop in short-term uncertainty for the SPX-derived VXST since the period after the December 17 FOMC decision. That policy gathering was about relief that rate hikes weren't imminent, this one is about China and Greece pulling back from the precipice and representing systemic threats.
