VIX a la Mode

Andrew Giovinazzi

Yo Pit Crazies,

A few weeks ago, Mark and I talked about the Gamma Bomb. We even gave out a trade idea, and surprise, surprise, it worked out well.

In order for the bomb to ignite, VIX had to spend some time at 12. Mark and I thought it was in cards before the 4th of July, so we bought some cheap 13 puts.

For traders with short memories, VIX spends a lot of time in the 12 handle. The handle is just the number. In the old days we just quoted the fraction, since it saves time. The handle was the nearest whole number. The statistical mode – the most frequent number – for VIX is …12. The funny thing is that we haven’t seen it for 3 years.

The most frequent number historically for VIX, and it makes it reappearance after 3 long years in hiding.

Here’s what it means.

VIX Is In Zone 1 for the First Time in a Long Time

That’s the bottom quartile for volatility after spending most of the last 3 years in the top 2 quartiles. VIX was so volatile that it moved my zones up a point – so Zone 3 is now 19-23.

It also means that options are cheap and perfect for my Easy Button strategy.

There are simply just a lot more choices now than a year ago. Also for VIX traders, VIX future premium as a percentage of the future price is higher, which means erosion in the vol products like the ProShares Ultra Short Term VIX ETF (Ticker: UVXY) are going to cause the longs to cry in agony. The iPath Series B VIX Short Term S&P 500 ETN (Ticker: VXX) will have the same issue.

The story is the lower implied vols, and that works for the vol products too. They could find their way into the Easy Button very fast this next week.