The market is not ready for lower vol

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

November 28, 2023

Yo Pit Crazies,

Weekly Profit Cycles comes back to Option Pit today! You will have a chance to buy the best risk adjusted trading system out there. If you can find a better one, I want to know.

Mark did a video not long ago on the Gamma Bomb and when the conditions were right for a big smoking in 0 DTE options. I will say this, it happens in all derivative products. After 30+ years of this I can attest to it. The Risk Camel finds a way to stick their nose inside the tent. And it sits there quite happily until the rest of the camel is sitting in the corner until someone notices.

A short list of things going to 0 or blowing up since I started trading options in 1989:

FDIC insured Savings and Loans

Sovereign Currencies and Bonds

MBS Mortgage Backed Securities (Twice in 1991 and 2008)

OEX puts

Portfolio hedging

Internet stocks

CDS and Interest rate strip MBS

Short Volatility Investment Vehicles SVXY, XIV

US Treasuries!!!!!!! Down 40% from Covid Highs (Ticker: TLT)

0 DTE Options not there yet.

Then it is too late. Are we close to that? Nope not really because we need a period of enforced complacency in trading. Multiple days of SPX having a .20% range really brings confidence in traders.

15 day SPX chart with SIGMAS

It has only been a week of going nowhere. Wait until it is 4 weeks, 6 weeks. Premo sellers are going to go mad with the fever. The fever of selling all options and watching them go to 0. It can happen and it has happened but it does not last forever.

So how can we trade and make money shorting vol when VIX is 12.

There is a way

Trading VIX is trading the VIX futures

The best and worst thing about social media, which I am now a part of, is that it is hard to tell the difference between fact and opinion. I think part of the market uptick is because DJT is leading in the presidential election polls. That is an opinion. Folks liked stocks during that period, 2300 to 4060 SPX and that is a fact. That is what I call a known factor. It was not bad. Until last week JB was close to flat SPX as POTUS. JB is running 13% up from 4060 to 4550 for SPX since he was elected. That is still green and that is what folks will remember in November.

Trading VIX is not just SPX direction. It is trading SPX volatility. Note since COVID, IV is much higher than what it was before. The market traders who are 22 think high IV is a normal state. It is not. It is only a fraction of the historical number.

VIX futures in a low vol environment are always higher than cash. They decay to the VIX cash

5 year SPX IV,

You can learn how to use them in Weekly Profits Cycles. It is just not your normal trade but it is a trade based on facts and math. I own a lot of VIX puts, even with VIX this low. I am comfortable doing so because for me to lose money on them SPX has to do something else.

Something it is not currently doing. Currently it is going nowhere.

Let’s see how it turns out. Look for news on Weekly Profits Cycles soon.

To Your Trading Success,