VIX drops to the 11 handle, who said that could happen?

BY ANDREW GIOVINAZZI

May 19, 2024

Hey OP Crew,

AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…

If some of my Option Volatility Jargon is vexing, our Glossary is here.

Last Week:

“We could see a pump in vol for Tuesday’s number. I don’t think it will hold with the massive selloff in VIX this last week and with short term IVs. Liquidity providers must own a ton of options to get vol this low this fast after just trading 16 two weeks ago. Earnings are out save for NVDA but this is not until the 22nd of May. That is a week plus hole in activity and it is clear traders do not want to buy protective options to hold that period. Crazy town 11 handle VIX this week with SPX 5250 in sight.”

Oh my, a near perfect prognostication! The only problem is SPX is reacting too well to the news and jumping to 5300 into Friday’s close. 11.99 handle for VIX not to bade as liquidity providers gobble more options. The controlled drop now means some buyers of options have stepped into the breach.

Mark made a good point, Nvidia Corp (Ticker: NVDA) will have the biggest earnings impact propelling stocks to 5400 and beyond.

SPX daily price action over the last 30 days

SPX is at all time highs and where do I go with that. Higher is what! There might be some politics coming into play as the Presidential contest is swinging more toward DJT and the market loved him while he was in office.

SPX sigma (Vol per term average) levels over the last 30 days.

Sigma Vols hit a new low for the year. Traders are moving out of the way with speed as I can see from the chart above. I am already seeing single digit volatility across terms in the front 2 weeks which is hard to believe. I don’t ignore the signals right in front of me. Lower vol is generally higher VIX.

The 10-day realized vol dropped 5 points to 8.41% with the market comfortable moving higher with many sectors picking up ground. 30 Day realized vol is staying above VIX so traders are expecting the crush of activity to stretch into summer months..

SPX realized volatility snap on May 10 2024

OP VIX Zone Watch

VIX ZONE 1 9-13 we are here

VIX ZONE 2 13.01 TO 17.99 We were here

VIX ZONE 3 18-23.99

VIX ZONE 4 24<

The front end of the curve continued its drop into a normal contango with the curve almost in a normal VIX state for a bull market. Zone 1 is here and it has proved a sticky area to hold this year. This is still a bearish curve for VIX and strong downzone action.

Closing VIX curve, May 10 2024

VIX is nearly a full point lower than last week. VIX is also at lows of the year. Contango is back to a more normal level.

Closing VIX cash and curve, May 17, 2024

Basic Vol 101 on our Option Pit YouTube channel.

VIX 30 day chart with 1 min candles

VIX is making lows and likely to continue with a small blip into NVDA earnings. At this point NVDA is the only thing that derails the market next week with the lack of hard news but 5400 will be tough. I have been off by 50 SPX points a week on the upside but NVDA could really propel us higher.

11 VIX for the week sets up the Gamma Bomb another tick or two. Stay tuned for more on that.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 11 for 12 for Opens in WPC. So getting paid to own SPY puts in an up market is something anyone can learn to do.

To Your Trading Success,

-AG