Yo Pit Crazies,

If you want to learn about Gamma and Flow, check out Griff’s upcoming class with Spot Gamma this weekend.

The IDF finally went into Gaza and the only thing certain is social media is abuzz with totally conflicting sides to the story. I will let the talking heads debate it but suffice it to say, once the army goes in, stocks tend to rally and vol begins to drop. Can today’s rally turn around in a New York Minute? Of course it can. That is the nature of backwardation.

8 VIX curve trading days 

Notice that the front end of the curve has been at or over the 60 day cycle for the last 8 trading days. I drew a VIX Line of Death for reference. We have not had that since 2022.

What does it mean for you and stocks.

This is a very flat backwardation

So what the heck does that mean? That means VIX cash is just over the front 2 terms. Just a tick or two but that means Nov and Dec IV is elevated relative to back month IV. Normally those IVs would be lower. Especially when realized vol is only 13% over the last 30 days. That means VIX is pricing something that is not happening right now. Vol is fully if not over priced.

The chart below Vol of vol, the red line on the bottom half of the graph, declining steadily since the first pop 7 days ago. That means the air is slowly going out of the balloon. Stocks seem to be setting up for a bounce.

If I see a normal contango tomorrow, I believe stocks are getting past the Middle East. Now that could reignite anytime but really that kind of market mayhem takes a while to defuse. This could open up buying puts in the vol products again.

The Dec Vol product options are going to look enticing if the rally holds in SPX tomorrow.

My recommendation is to look at x and to go out about x days. I’ll follow up more tomorrow.

To Your Trading Success,

AG