5500 so is it time to double down

BY ANDREW GIOVINAZZI

June 23, 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:

“Jun21 implied vol says the week should be quiet but traders did add some premium risk. The more I get skeptical of a rally via rising VIX, the more we rally so the VIX signal will likely deliver 5500 SPX. The more the VIX gets jittery in 2024, the higher we rally. When the rest of the market decides to participate, that will get us to 5500 right quick.”

Not a bad guess from me. The little VIX pump actually got us a higher SPX where we sniffed the heady brew of 5500 for all of 1 day. Nvidia Inc (Ticker: NVDA) made a new all time high before backing off. Apparently the biggest market cap stock being NVDA was a bit too much for folks to handle.

The phrase I am going to right now is, “It just doesn’t matter.” We are in a cyclical bull market riding the rise of a new technology that no one knows exactly how it will turn out. The sky’s the limit on the upside so there is no sense in wondering what direction stocks are going. Much of the rally is on 3 to 5 stocks so there are 1000’s of others to participate in the next leg up.

That should bring more short opportunities to Mark and Licia’s Double Down Meter. Check it out.

The real downside is run away USGOV spending and the only real blip in stocks came this week when the government rang up $1 Trillion dollars in interest payments for the year. Quite possibly the only part of Bidenomics we will be stuck with. It can change but neither party is currently interested in that. That is the path we are on but right now, but AI and growth dominate.

SPX daily price action over the last 30 days

SPX got to an all time high Thursday before backing off. The same as last week. The high in SPX coincided with the ATH in NVDA. We do have the start of some rotation out of the hyper performance Big Tech. Over 100% since the beginning of the year for NVDA is unreal performance. I want to say that 5500 feels like resistance but it is really just a target to go through.

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

Sigma Vols are up in Jul and Aug. SPX 30 day straddles do not like going under $120 for too long. That is roughly a 12 VIX. The issue is we are up 200 points SPX in 7 trading days. That is some serious path dependency on a $120 1 month straddle. In other words the market thinks the range is $240 in 30 days and we did $200 in 7 days. Hard for vol to get lower from there.

SPX realized volatility snap on Jun 21 2024

Realized vol is 5.68% for the last 10 days to lows of the year. However like I said above, there is some sneaky volatility in the market because things are in one direcion. 60 day realized is 10.82 so we are setting up for a much lower VIX if SPX can actually go down and close down for a day or two.

OP VIX Zone Watch

VIX ZONE 1 9-13 we were here

VIX ZONE 2 13.01 TO 17.99 We are here

VIX ZONE 3 18-23.99

VIX ZONE 4 24<

VIX ended up higher for the 2nd week in a row. My sense is the strong pull up in direction is dragging SPX IV just a bit higher. Normal bull market action from my experience in the SPX pit in my strapping youth.

Closing VIX curve, Jun 21 2024

Closing VIX cash and curve, Jun 14, 2024

The VIX curve is in a normal contango shape save for the Election Volatility Premium in the Oct cycle. 2 weeks in a row for a higher Jul future. Any real lift in the futures is a reason to take notice. I did hold all my SPY put spreads in Weekly Profit Cycles this weekend. I do think it is the hard upward rally keeping the bid in VIX.

Basic Vol 101 on our Option Pit YouTube channel.

VIX 30 day chart with 1 min candles

It is hard for me to short aggressively a 13.20 VIX. But I do think the Volatility Risk Premium (VRP) is crazy high. This week there is no real news, so I expect all time highs (ATH) in SPX. However, VIX will not make year lows unless there is a decent 1% pullback in SPX. It sounds nuts but that is the way it is. I don’t make the rules but I do tell you what they are. It is likely any pullback in SPY and I will dump my SPY puts this week.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 14 for 17 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