Did the Trump verdict wreck VIX?

BY ANDREW GIOVINAZZI

May 28, 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:

“For 2024, no news is generally bullish with some AI activity in crypto and other names like Dell Computer Inc (Ticker: DELL). We might see a 1% range for SPX this week with a new low in VIX to 11.50. The market is expecting the slowest week in several years so let’s see if it delivers. That should pay well for Weekly Profit Cycles as I am long VIX puts and SPY put spreads near the money.”

I am going to call no good on my prognostication. The Trump trial and PCE inflation news were enough to keep stocks on pins and needles for the first 3 days of the week. So realized volatility was so low VIX should have been 11. Post Trump-verdict SPX did not really move but stocks did sell off decently, over 1% from the top on Friday morning.

Then SPX stopped and slowly gained ground into a swell that was a near Gamma Bomb to the upside. The volume was nuts in SPX 0DTE. We ended up within 1% of the close last Friday. SPX melted up on short covering.

All i can see is SPX barely moved on the DJT trial news which means the market expected guilty. Now the election circus continues into November. There is the potential for something odd to happen so the next potential vol event from the election is the sentencing in July.

SPX daily price action over the last 30 days

SPX did not get to all time highs again and most of the news and data was mixed. Certainly not good enough to propel stocks and bonds for the most part had a poor week. Dell Computer (Ticker: DELL) did not produce the fireworks traders wanted but many stocks outside of the Mag 7 rallied hard into the Thursday, Friday like CVS Inc (Ticker: CVS).

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

Sigma Vols spent all week climbing from last Friday’s lows only to peak and crash Friday. That almost erased the 3 day weekend effect for Memorial Day. We got back to Tuesday closing IV so traders are ready for less volatility this week. Summer doldrums might start kicking in.

The 10-day realized vol settled 8.74% with a 2% range Friday. Friday was nuts and I believe a 0DTE squeeze got folks excited again on the upside.

SPX realized volatility snap on May 31 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<

VIX ended up 1 full point higher after the holiday VIX crush last week. Any really rally in VIX could not get above 15 and the curve went flat for a while Friday. That is usually a signal for a volatile VIX which materialized Friday into the close in a flurry.

Closing VIX curve, May 24 2024

The VIX June contract close the week .32 higher and I doubt it will hold that level this coming week. The election VIX contract was up .05 so not really a blip in the Election Crazy Meter.

Closing VIX cash and curve, May 31, 2024

Basic Vol 101 on our Option Pit YouTube channel.

VIX 30 day chart with 1 min candles

This is a slower news week with the Fed out with the latest announcement the following week on the 12th with VIX expiring the next week 18th. We could dip back to the low 12s or 11s this week with SPX keeping to 1-2% range. Without more earnings or market catalysts, SPX might hold the crazy Friday rally and try for 5300 again.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 13 for 15 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