Yo Pit Crazies,
I teach how to use option volatility in every product I run here at Option Pit, and our other instructors do too.
Why?
Options move in three ways- price, volatility and time. As a trader you can pick 1 or all of the 3 to trade and the more used in trading decisions the better your chances of success. It’s better to have 3 things working in the right direction than one thing.
That’s something anyone can learn in OP Mentoring.
Speaking of directions, this one very sensitive indicator has been moving in 1 direction for the last month.
There’s a lot of talk about the 0DTE options messing up VIX and volatility in general. Those short term options are making things too unhinged and crazy.
Well, not so fast!
6 month VIX9D chart with 1 day candles
If things are so nuts in short term options, why is this indicator making year lows?
VIX 9 Day Is Hitting 2 Year Lows!
What is this odd indicator, you ask? The Cboe takes the VIX calculator and uses a 9 day average duration instead of a 30 day average duration.
Remember, all options are connected to each other by either horizontal or vertical skews. If the 0DTE options were causing some crazy mess, VIX 9 Day would be very high. And it does get high when the market moves.
But it isn’t moving.
VIX 9 Day with 1 day candles over the last 2 years
Why is short term vol so low all of a sudden?
You know the answer … The Fed!
For the first time in a year, the Fed adds liquidity, and viola! VIX9D plummets.
While I don’t expect a raging bull while interest rates continue to climb, the cause and effect is startling. VIX9D or VIX won’t drop while there is significant worry about a crash. But it is dropping and fast.
4200 before 4000 at this point. I would not have said that a month ago but QE still wins.
The Rundown
Another solid week in Option Pit products!
Big Money Flow
Vaneck Gold Miners ETF (Ticker: GDX) May5 35 calls closed for a 50% gain
BankAmerica Corp (Ticker: BAC) Apr21 29 calls closed for a 63% gain
Citicorp Inc (Ticker: C) Jun16 50/57.5 call spread closed for a 60% gain
Nitro Trader
SPDR Select Financials ETF (Ticker: XLF), ArkFunds Innovation and Tech (Ticker: ARKK), Devon Energy Corp (Ticker: DVN) Apr21 33.5 calls, 39/35.5 put spread, 50 closed for a 51% gain
Power Income Trader
SPDR S&P 500 ETF (Ticker: SPY) Apr21 409/408 put vertical spread closed for a 36% gain
To Your Trading Success,
AG