Why Do Things Change So Fast?

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

August 31, 2023

Yo Pit Crazies,

Market Conditions are kind of like the weather – wait long enough and they are guaranteed to change. Wait really long and they won’t resemble anything you can remember.

The cove I live on was carved by a mile thick sheet of ice 100,000 years ago. Kind of like Nvidia Corp (Ticker: NVDA) at $115 – wait long enough and you won’t recognize it.

The only guarantee is that things will change in stock sentiment: something we cover every day in the Trading Desk. iPath Series B S&P 500 VIX Futures ETN (Ticker: VXX) puts were all the rage in class Wednesday because we had them until the close. The sentiment changed, and it was time for me to start cashing in.

SPX 1 day candles on a 30 day chart

I can teach you how to read sentiment.

Assume Volatility Will Stay the Same as It Was yesterday

The liquidity provider is in a race to press IV down all things being equal. Right now, with economic news softening a bit, we might be nearer the end of the rate cycle. Those things on balance changed the sentiment from bad to less bad, and in 2023 that means we rally.

The graphic below shows VIX and 9-Day VIX (Ticker: VIX9D) are dropping rapidly relative to the futures. With a three-day weekend coming up, the LPs are only too happy to lower short term IV if they don’t think things will get too exciting.

From the way I watch the market, they’re signaling a sentiment of less activity going to Friday, even though realized vol in SPX picked up last week. It appears we could make new lows in the vol products like VXX into Friday’s close.

Why did I close some VXX puts? It was the end of day, and I was .15 away from my target – that assured me a win. It even gives me a shot in case the sentiment changes … which can be quite fast.

If you want to trade for sustainable bucks, close enough is good enough sometimes.

More on reading my “VIX tea leaves chart” tomorrow.