The FOMC meeting is making the market’s blood pressure boil

BY ANDREW GIOVINAZZI

August 21, 2024

Yo Pit Crazies,

You want to learn how to trade TIME DECAY, check out this video.

Yesterday I discussed the difference between Gamma and Vega. Today it appears that there is a crossroads where volatility measured by VIX is flying, but the market is not actually doing very much. VIX going up usually means traders expect the market to move.

It also means that I want to see exactly what VIX is measuring. The biggest issue is folks get confused about what VIX is actually measuring. And some of you ask why do I need to care about VIX? Do you care about what your blood pressure is?

If so it is time to care about how the market measures its blood pressure. If I am going on a diet, i would bet my blood pressure would go down, If I am going to drink a ⅕ of Jack, i bet that it will go up.

Check out the easiest way to measure the market blood pressure here.

VIX measures 30 day volatility

That means traders have to cover what they think is the range for a 30 day period. That straddle, call and put, is $165 so the range is $330. That means the market can easily price a move up that would include all time highs and beyond. It also means that 5500 is a reasonable target for SPX for the next 30 days.

A hundred $100 move is less than 2% in SPX. Recent FOMC meetings have produced moves closer to $150 over a 3 to 4 day period post meeting. Traders like to jump on the feeling they get once the Fed pronounces a policy. The trend is sharper.

That pushes the market’s blood pressure up in the short term. A big move causes a “spike” and that is what volatility tries to price.

It is also what we trade in the Trading Desk Backbone SVIX strategy. Check it out here. I expect to add a Weekly Trade today.