Today's trade: BOT +2 VIX 100 21 AUG 19 18 CALL @.55
We're taking a position here that the VIX is overdue to 'normalize' and possibly spike higher than average by late August.
This could happen if the S&P500 were to suddenly start to sell off after this recent period of low volatility.
There have been reports lately of a mysterious VIX trader who's been buying daily this week over $60,000 worth of these calls in a single trade.
The 18 strike was the highest volume strike at 22 days to expiry. 28 delta VVIX at 85. VIX finished the day with 430k options volume. I got an instant fill at the ask, 5c wide spread. The breakeven on the trade is 18.55 and reward=risk at 19
The risk is the full debt paid expires worthless by expiry.
We know with certainty that the VIX will 'normalize' again to it's historical average / median range. The big question for traders is when will this happen?
This study shows it's been 53 trading days since the VIX was last at 19+. The decade average has been around 44 trading days or about 9 weeks.
The decade median range VIX is around 16 and the average 17. This is about equal to the upper 1 standard deviation range for the linear regression on the past decade.
At a 28 delta, the markets are pricing in low probability of reaching >18 by Aug 21. Certainly the trade is not a guaranteed win. So how long could it take to reach 18 + VIX again? While the average has been 44 trading days, the standard deviation has been 106 trading days or about 5 months. VIX traders sometime point how the index tends to 'cluster' at the low for extended periods of time.
In both 2006 an 2017 it took 300-400 trading days for the VIX to return to higher than 18 range. Interesting to note the 2006 period was about two years ahead of the great financial crisis. Could the record low volatility of 2017 have been a recent 'advance warning' of the next bear market to come? Certainly 2018 was a volatile year. Will 2019 compare? We'll see how the trade plays out in the next 3 weeks!
What are your thoughts? Thanks for reading and happy trading!
We're taking a position here that the VIX is overdue to 'normalize' and possibly spike higher than average by late August.
This could happen if the S&P500 were to suddenly start to sell off after this recent period of low volatility.
There have been reports lately of a mysterious VIX trader who's been buying daily this week over $60,000 worth of these calls in a single trade.
The 18 strike was the highest volume strike at 22 days to expiry. 28 delta VVIX at 85. VIX finished the day with 430k options volume. I got an instant fill at the ask, 5c wide spread. The breakeven on the trade is 18.55 and reward=risk at 19
The risk is the full debt paid expires worthless by expiry.
We know with certainty that the VIX will 'normalize' again to it's historical average / median range. The big question for traders is when will this happen?
This study shows it's been 53 trading days since the VIX was last at 19+. The decade average has been around 44 trading days or about 9 weeks.
The decade median range VIX is around 16 and the average 17. This is about equal to the upper 1 standard deviation range for the linear regression on the past decade.
At a 28 delta, the markets are pricing in low probability of reaching >18 by Aug 21. Certainly the trade is not a guaranteed win. So how long could it take to reach 18 + VIX again? While the average has been 44 trading days, the standard deviation has been 106 trading days or about 5 months. VIX traders sometime point how the index tends to 'cluster' at the low for extended periods of time.
In both 2006 an 2017 it took 300-400 trading days for the VIX to return to higher than 18 range. Interesting to note the 2006 period was about two years ahead of the great financial crisis. Could the record low volatility of 2017 have been a recent 'advance warning' of the next bear market to come? Certainly 2018 was a volatile year. Will 2019 compare? We'll see how the trade plays out in the next 3 weeks!
What are your thoughts? Thanks for reading and happy trading!
Trade active:
This morning before the FOMC madness I added another VIX call
BOT +1 VIX 100 18 SEP 19 20 CALL @1.00
By the afternoon, the SPX made a two standard devation move in minutes
when J.P. rattled markets with his comments.
Walking backward after saying, "I didn't say it's just one rate cut. "
Both positions have not yet quite reached my minimum profit target but very close. I'll aim for a minimum reward of equal to the debt/cost paid up front.
We'll see what tomorrow brings!
BOT +1 VIX 100 18 SEP 19 20 CALL @1.00
By the afternoon, the SPX made a two standard devation move in minutes
when J.P. rattled markets with his comments.
Walking backward after saying, "I didn't say it's just one rate cut. "
Both positions have not yet quite reached my minimum profit target but very close. I'll aim for a minimum reward of equal to the debt/cost paid up front.
We'll see what tomorrow brings!
Trade closed: target reached:
SOLD the AUG 19 18 calls for @1.50 today for a quick profit.
At the SPX lows the VIX reached 19 / VVIX 110.
Still have the Sep call to play with if this market meltdown continues.
We'll see what tomorrow brings!
At the SPX lows the VIX reached 19 / VVIX 110.
Still have the Sep call to play with if this market meltdown continues.
We'll see what tomorrow brings!