BY ANDREW GIOVINAZZI
March 12, 2024
Yo Pit Crazies,
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I saw this tweet below form Vance Harwood who is an excellent vol follow on TWITTER.
He is noting, what Mark and I have, that VIX is still running hot with the bull market we have.
I think part of this is event risk but also what part of volatility the market is bidding up.
Biden hinted in the SOTU address that rates need to come down. What did he know or does he know?
Traders price event risk a certain way as one can see from the VIX curve above.
The VIX October future has held significant value for while now waiting for the election. If you have doubts about how crazy the event will be, take a look at the premium the market gives it.
What we have now in the very front end, as opposed to the election back end bid, is for the CPI and what might unfold this week.
Let’s check it out.
The whole VIX curve shifted up
This is simply the market repricing volatility. With the CPI coming in, traders understand the upside move has to be respected so option implied volatility goes up.
The SPX Mar12 5145 straddle is trading $150.
That conveniently gets us to 5000 SPX on the downside and all time highs on the upside.
VIX term structure with the blue curve today’s VIX curve
That seems about the right price to me.
A bad number and it is back to 5000 with maybe a small Tech Wreck.
A good number and we are running to 5200 SPX.
The reason why the VIX is here is the inflation data could bring the move in a day or two.
Buckle up.
I posted a trade idea in the Trading Desk as trade 171.
It looks like this:
1 SPY Apr19 513/520 cs for 3.05 3.20
4 VIX Apr17 17/26/34 .71 longer delta
I wanted $3.05 for the call spread and did not get it.
I have a feeling the call spread will be out of reach after the CPI.
To Your Trading Success,
-AG
Andrew Giovinazzi
30-Year Trading Pro
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