For those following the swings in Vix since 2019 you will know we are tracking for the overprotection from sellers and how to try to get rid of the 'all is back to normal' sentiment.
This is a shorter update than the previous three chapters, intentionally aimed at casting some light on how sellers are overshooting support and how risk 'may' appear in the microstructure. So let us start by recapping the swings between the starting point of the expansion which set this all in motion:
Capitulation waters clearly represents a manoeuvre which is closely intertwined with microstructure and liquidity game theory and indeed must always be so because of the nature of free markets. Nevertheless, there are traces of overshoots to the downside. For example when sellers went overboard to sweep the lows underneath 12 in attempt of opening the single digit block: Buyers loaded and created a strong basing formation as pointed out in chapter II.
In the area where sellers overshot is a strategy you will notice me using often. Play through the charts and notice how minimal drawdown was required at the base (for which we gave incredible respect) and because we had to keep in mind the unavoidable possibility of economic cycle inversions.
Here is the final example in the recap after we exploded towards the 85 final target as called from 12 (+500% and a historic move in volatility).
"VIX Completing the Swing to 85"
Intending to meet a possible barrier at 38 and 25, only now does it become clear as to why price stalled at the highs instead of developing a three figure vix print. No matter what happens, this has and will remain three superb chapters of effortless unravelling of the soft retail and unaware institutional money.
The spare room to 100 remains open.
I think the 'everything is back to normal' crowd are too hasty in this and do not realise the tsunami of bankruptcies and debt on the horizon as we enter into year-end and 2021.
Every digit retrace point in the VIX from current levels should be bought aggressively for a position way out to the 85 highs and 100 extensions for an epic news headline. This move should by now be chalked on all charts.
As usual thanks all for keeping the feedback coming 👍 or 👎
Interestingly, this week was a great week to buy VIX options as the VIX was bouncing around the bottom between 21-22. I bought Sep 22 Calls around 4.6 this morning.
The SPX overnight futures are down 21 handles, and the VIX should pop tomorrow. If the VIX breaks 23.5, it will break out of the descending channel, and it is off to the races.
Let us know your thoughts on the next stop for the VIX should it break out. Thanks!
p_hud
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Long the VIX.. that’s a tough place to be. But I agree with you.
veryevilone
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I think everyone has gotten into position for the next few months. People have their money where they want it to be according to their beliefs. After the November election i expect volatility to come back as people adjust according to the new reality.
TL;DR volatility will continue to go down until Nov election. But lets see
@ridethepig How do you trade VIX? UVXY or something else.
Griepa
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Thank you for taking the time to share your analysis and thoughts. With the past few weeks of activity, are you still committed to this thesis (or) has there been a change? I am very curious to hear your thoughts. As always, keep up the great work!
ridethepig
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Thank you @Griepa, indeed I am still subscribed to this view with FED today the final event risk hurdle to clear. I am expecting the 🔑 flows that start the volatility slingshot to begin next week and to last into October/Early Nov
Interestingly, this week was a great week to buy VIX options as the VIX was bouncing around the bottom between 21-22. I bought Sep 22 Calls around 4.6 this morning.
The SPX overnight futures are down 21 handles, and the VIX should pop tomorrow. If the VIX breaks 23.5, it will break out of the descending channel, and it is off to the races.
Let us know your thoughts on the next stop for the VIX should it break out. Thanks!