VVIX trade ideas
VVIX Looking Ready for LiftoffThough the VIX was down ~2% day, it remains elevated, and importantly, the VVIX (the volatility of volatility) is up today, and looking like it wants to launch itself off of a bull flag structure.
For those curious, the VVIX measures "institutional hedging." Anything over 110 is considered worrisome for the markets.
Comparing Vix to VVixVVIX is the volatility of VIX. Comparing them would give you a bit more insight.
The risk in the market is not off the table my friends. As you can see, VIX is still hovering in the red zone. Watch, Watch and Watch.
BTW, for those who dont know VIX is always quoted in %. That's why the zones start at 10% and go to 50%. Beyond 50% is uncharted territory. Market has printed 50% only 5% of time in the time.
Volatility of the VIX? It Hints A lot More Selling is ComingSomewhat of an oxymoron, the VVIX measures the volatility of the VIX and the VIX is the fear gauge of volatility on the SPX. When the VIX goes down, usually bulls cheer this as some sort of bottom, however, that is an amateur move. In reality, the VVIX continues to show very little to no signs of letting up other than simple retracements for more accumulation and therefore, the VIX will likely spike to 90-100+ as I stated a week ago.
On March 11th (shown below), I predicted the VIX would break new records and easily surpass 90 with a reasonable probability of it reaching or surpassing 100.
Remember, just because the VIX decreases this DOES NOT mean equities will rise or that a bottom has formed. This is extremely important and people must not make this crucial error in their analysis.
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Today we heard news of Powell panic cutting rates and entering QE (100 bps cut and 700B in QE) to start. In reality, there has never been in a time in history where rate cuts above 50 bps have ever eased the market - the complete opposite - it induces panic that the worst is on its way.
The next step will be negative rates and yes it will happen. But be aware, when that is announced the US market will tank like you have never seen before.
In the near-term we can expect fresh new lows in the US markets perhaps as early as Monday, March 16th (tomorrow).
- zSplit
Market Recap: Nobody is necessarily running for the doorStock floated lower to close as various potential catalysts loom later this week. The health care, technology, industrial and utilities sectors were the biggest loser today while staples, consumer discretionary gained 0.08% and 0.12% respectively. And the expected move of SPY is expanded on the deadline of raising tariffs on China that is coming on Dec 15th this week.
(S&P 500: 3135.96 -0.32% DOW: 27909.6 -0.38% NASDAQ: 8621.83 -0.40%)
In this week, we have a lot of risk on the table, if you open the calendar to begin this week, we can talk about the Fed, we can talk about China trade deal, we can talk about the ECB details and there are also some CPI numbers, retail sales quotes. These are all kinds of risks on the table right now, but these aren't necessarily what's going to drive all trades this week. The thing that makes a real difference is how much are these traders to start to reach to get the risk off the table.
Today AMEX:SPY down 0.31% and it's not a sell-side activity as the SPY has been traded on a light volume lately. The more alarming fact is VIX was up 15% today and that's added a little bit of fuel to traders' fear.
TVC:VIX itself is totally transparent as everybody sees it but people usually don't necessarily see is the amount of action that's going on VVIX Index which is the volatility of the volatility index that cracked over a hundred today.
What is indicative of this is that the traders are coming and specifically buying VIX calls which would make the volatility of the volatility index goes up. As it goes up that could signal how extreme are these traders really reaching for getting the risk off the table. So when we seeing some buying volatility activities in the marketplace, volatility starts to go up and as soon as volatility starts to go up it'll actually have a little bit chain reaction of events like trigger some activities to sell SPY.
So the VVIX could tell us more along these lines that today there is nobody necessarily running for the door, but they are definitely active.
What is the root cause of this issue is we got a lot of risks on the table as described above at the begining, so traders, be cautious about this week on taking gains and stop losses.
defusing the bomb p II- realized vs impliedrealized vol has already shifted and setup a new base of operations. the coiling will contract volatility but the faster it contracts to reach the quicker the response. also bond volatility/economic data will guide the path ahead. to take advantage of vol-vol. im taking a bullish duration premium selling posture
dont fear the reapercurve still set in a wide contango. HV still extremely low, but hedging too cheap to pass up. i like further date call spreads or possible call diagonal. still no definitive catalyst to spark vol. but when hedging gets dirt cheap most will take advantage but in a way that makes sense via spx
vvix--higher vvix=less risk when shortwhen playing vix it's important to know a few things. the spx skew, the volatility futures curve vs spot price, realized volatility, and the implied volatility of volatility. the SKEW has leveled off from 126-130 range (fairly elevated) to 116 lower range of the yearly average. that being said spx calls to puts iv differential are fairly weighted, but risk demand 2 standard deviations out are minimal. although the Vix futures curve is in backwardation it's very slight ($.13) spot is mainly fixated on EOW hedging demands due to trumps tariff increase threats, but I suspect its more of "priming the pump". most consider trade negotiations baked in, this considerable range of uncertainty could lead to sizable gains when the likely positive certainty is revealed via short covering. EUROZONE data came out springingly strong which negates my fears of an outstated move in the bund-10 year spread creating bond volatility. But VVIX is in an elevated state (100+). I define VVIX in ranges that define strategies. since VVIX describes option pricing within vix. (60-90) I would deem a tame range of VVIX and would seek out neutral buying strategies (debits). in an elevated range of VVIX (100-150), I would seek to sell premium. since vix stays in contango 80% of the time and 20% in backwardation. my tendency in both environments is to seek out duration positions. that being said id consider a bear call spread within Vxx, but hedge that exposure with a bear put spread within spy. the idea is that vvix is likely to fall. generating a faster IV crush rate within VXX but if VVIX were to continue to the top end of the range the spy bear put would continue to take advantage of increasing implied volatility and Delta move. I consider it unlikely to continue, but duration regardless and playing an effective strategy based on IV/ IV percentile is what separates a professional from an amateur. why hedge exposure/spread risk?
everyone has a plan, til they get punched in the face.
i say plan on getting punched in the face, but have some brass knuckles handy?
2 truths and a lie-- priming the pumpso it begins. im under the impression that these tariff threats are a means to prevent a sell on the news event when the actual resolution occurs. volatility=velocity in my book in either direction. falling volatility is usually a very bullish sign so maybe. this trump tweet is a bluff to increase the velocity of the move post resolution this week (possibly). a speculative call but im gonna go after it
Jerome Powell "being Alan Greenspan" (the 95 pivot)Vix contango a decent spread. Roughly .50 spot--M1. Tail moderate. Equity risk not driver of current volatility however bond volatility has been the main driver. Although lower yields are concerning the main valuation method for risk assets is bond yields. So going forth expect with lower yields higher equity valuations. With higher valuations expect lower volatility over time.
Monetarily we're in a time similar to Greenspan's 1995 pivot. Let's see if Jerome knows the script
dont fear the reaperso this slight pop in vvix is still controlled/favoring the short side overtime due to the embedded cost of carry.we have yet to see a realized volatility moment like we did during December (melt down). with vvix around its historic range, i say no need to fear the reaper.
although higher vix may be perceived with higher risk, its actually the opposite. so, with vvix being in its historic range but cheap on a relative basis. im a buyerof longer dated spreads. when VVIX or the implied vol of vix is above 110 then im a seller of premium
VVIX-potential reflexive bounce & general applicationsVVIx is the implied volatility of vix options. Vix is the implied volatility of spx options so vvix is the implied volatility of spx's implied volatility or vix (vix-ception). It relates to pricing of vix options on both sides but favors vix calls WHEN SKEW (cboe skew) begins to effect OI on spx options. Skew places extra weight on spx puts and allows for the likelihood for 1+ standard deviation moves prior to backwardation in vix futures options. General rule of thumb: vvix 60-100 neutral wide buying strategies are key. 100+ selling/premium strategies are key. We're in a range of reflexivity based on 2015 flash crash levels but skew is still in it's normal range (90-120) but near it's reflexive zone too (120-150). Calendars and other debit based strategies are how I'm proceeding volatility is mean reverting ;) ignore oscillators more of a side indicator. To know when it happens keep these things in mind. But what you need to see is vix cash above vix futures pricing
Vol of Vol initiating Launch Procedures for $10 Billion Vega!www.zerohedge.com
imply that the overall volatility vega could be $10 billion or substantially higher. Such exposure would lead to dramatic moves in the overall market if the next VIX spike or 5 or more vol points does not suddenly reverse and "fill the gap" as has been largely the case on most previously similar episodes.
