SPY goes nowhere but VVIX still elevated
Yo Pit Crazies,
I wrote about the VIX curve yesterday and how much the futures were above the cash number.
Watching the VIX curve swing around is one of the best short-term indicators. My mantra is VIX will stay the stay until there is a reason to change, but the corollary is that the futures are always moving to the cash.
That is something anyone can learn to trade at the Trading Desk.
Since the beginning of 2023, VIX is down around 2 points and the SPDR S&P 500 Trust ETF (Ticker: SPY) is up over 4%. (See on the comparison chart below.) That is not the stuff of banking crisis madness. It looks more like a market that is looking at a slowing of rate hikes and digesting general world events.
SPY and VIX comparison. SPY purple line up top, VVIX on the bottom chart with VOL MAN marks.
Once again on Wednesday, we had a steep rally partly because an old hand is taking over Credit Suisse AG (Ticker: CS) from UBS SA (TIcker: UBS). That does mean that there is something worth salvaging. Silicon Valley Bank assets got scooped up too this week.
Will this be the next Great Financial Crisis if it is not looking like it yet?
VVIX Still Elevated
A few weeks ago on the OptionsInsider Radio Network, I said I thought the 70% IV was too low and bought a lot of strangles in VIX. I have since sold most of the upside and now the downside is coming into play as VIX ticks 19.
VVIX is the vol of VIX using the VIX method. It is still in the 80s.
To be fair, that is pretty low but, not the crazy 70% level of early March. Back then the market thought the pace of rate hikes would slow to 25 per meeting. That is what it got. It also got some instant liquidity from the Fed that is bigger than what the central bank did when it took over AIG in 2008.
Holding US Gov bonds is not the same as holding total junk mortgage bonds marked to 0; there are losses, but nothing like in 2008. Plus the Fed will let banks swap bonds at par for instant cash.
So how does SPY usually react to a massive push of liquidity? It goes up and VIX goes down. That is what is going to happen in the short-term. I like the May VIX strangles with long SPY as a trade.
Not too unlike the Trade Desk idea I closed yesterday for a 27% overnight win.
I am out today and Friday but will keep an eye on things.
To Your Trading Success,
AG