BY ANDREW GIOVINAZZI 

August 1, 2023 

Yo Pit Crazies,

If you want to understand what the heck this snap is underneath, keep reading. 

It’s a picture of how the VIX term structure is and how it should look, with respect to time to expiration.

Recall if I trade options, I can trade price, volatility, or time, or some part of each or all of those inputs. For VIX, I want to see how the future price of the Forward Volatility of the VIX cash versus the expiration of the cycle.

The expiration of the cycle moves closer while VIX maintains a constant 30 day duration. The VIX is the “near term” in a calendar and the VIX futures is the “far term”. We covered this in the Trading Desk yesterday.

Currently things are normally priced – or how it’s priced most of the time – for VIX in 2 weeks and 2 days to expiration.

The big question is … will it remain like that?

In a Low Vol Environment, VIX Gravity is Downward

Realized vol is so low that every move in SPX is like a ball bouncing, just waiting to come back to Earth. Unless there’s a big change in economic outlook, 8.37% realized vol in SPX will keep “pulling” VIX cash lower.

As I explained in the Trading Desk yesterday, lower short-term implied volatility makes for a higher Forward Volatility. That will keep VIX futures higher in the back month, as long as VIX is relatively low and the shorter term IVs are even lower. What we have is normal for a VIX in a bull market.

My big question is if VIX gets to lower lows after Apple Inc (Ticker: AAPL) earnings this week. If AAPL earnings are just decent, it’ll be a long hot deflating second half of the summer for VIX and the Vol Products come August Expiration.

There’s always a better time to make a Vol Trade – that’s something anyone can learn in the Trading Desk.

To Your Trading Success,

AG