VIX closes highs of the week and opportunities abound aplenty!!!

BY ANDREW GIOVINAZZI

September 9, 2024

Hey OP Crew,

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

Last Week:

“SPX is really in the orbiting way. 5700 is only a 1 day move away according to VIX so any day could see it. I think we will get the 5550 lows again into the NFP number. I feel right now this is a jello market, it is there but you can stick your finger though it easily in either direction. VIX will not make a low, if it does, until Friday post number, thinking mid 13s with lows for VIX late in the week into next. Traders are happy making money scalping which is something I have to remind myself to do.”

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We did hit very close to 5500 Pre-NFP but i quite neglected to think about what VIX would do if we missed the number. Actually I am lying, I thought the market would not care about the number and we would see a low for the week. That was a mistake which I rectified. “A” for 5550 and “F” for lower VIX at the end of the week. The jello market was a real thing as things started off poorly Tuesday with a 2% romp down. Overall a “C” for the week and I have to hang my Nostradamus hat up for now.

Two things caused the stir on Friday, one was weaker employment numbers with the rate back into the 4.3% range and Broadcom Inc (Ticker: AVGO) selling off on any other season would be stellar earnings. Not when it is a Great 8 company looking for perfection in earnings. Nvidia Corp (Ticker: NVDA) is very close to $100 not to trade there after pitching lower post earnings. If there has to be a culprit to recent market weakness I would look there. Stocks have not been the same since then. Weak data in employment is the second shoe to drop. Combined the two are giving traders pause so close to all time highs. Stocks are still in Jello Mode.

Weekly Profit Cycles folks closed some SPY put spreads early in the week and rolled them to lower strikes on the break below 5500 on Friday.

SPX daily price action over the last 30 days with 1 day candles

SPX Sigma for Sep, Oct and Nov

SPX closed at the lows of the week. I also noticed we filled a gap from two weeks ago with the 5300 next. At 22 VIX, that is a fast trip. The odd thing is SPX sold off 1.5% and stayed there most of the day with VIX peaking early and holding at that level. 4 down days in a row has not happened since April.

Sigma Vols increased all week in fits and starts. Note the huge drop in Sigma Vol on Friday morning post NFP which is what I thought the market was waiting for. Then things got into recession worry mode and Sigmas picked up fast as the market accelerated downard.

SPX realized volatility snap on Sep 06 2024

Realized vol for 10 days went from 10.19% to 15.79% in a week closing with a 24% realized vol for 1 day. What was an orbiting volatility intraday has turned into full fledged down days with realized vols close to the ATRs (daily range). 30 day average is back up to 19%.

VIX Volatility Curves

Closing VIX curve, Aug 30, 2024

Closing VIX cash and curve, Sep 06, 2024

Once again we have a flat curve but in backwardation. That is signaling more orbiting actions for SPX as VIX has not totally committed to the higher short volatility. Don’t be surprised by more volatility extremes in SPX. The short end of the VIX curve not going straight up means we have not gotten to Zone 4, just extreme 1 way moves for now.

Basic Vol 101 on our Option Pit YouTube channel

OP VIX Zone Watch

VIX ZONE 1 9-13

VIX ZONE 2 13.01 TO 17.99 We were here

VIX ZONE 3 18-23.99 We are here

VIX ZONE 4 24<

VIX started in Zone 2, touched Zone 3 and stayed there moving up all week. In general that steady bid for volatility is bearish SPX. Moving in fits and starts was consistent with the action but the steady bid was there. The only reason we did not get to Zone 4 was stocks did not want to get below 5400 quite yet.

VIX 30 day chart with 1 min candles,

VIX not being able to break the lows should have been a tell. My guess was they were looking for a good employment number but now the trend for lower NFP is pretty clear. VIX is picking up where we left off 1 month ago,

The Big Call

SPX mostly moved 1 way this week. That way was down which has been quite different from the action this year with 4 down days not since April Normally in the absence of news, the next Fed meeting is Sep18, the last trend will prevail and the market is now looking for good news to stop the slide. Lower rates are not much of a salve at this point. The only thing keeping me from thinking freefall is the short end of VIX did not really fly into full backwardation. More orbiting SPX with the downside trend holding until we get to the lower end of Zone 3 VIX. Next week could look like this week with 5300 as the next gap to fill. Maybe the fire from the Aug 05 crash is still burning?

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 23 wins for last 30 opens in WPC. So getting paid to own SPY puts in an up market is something anyone can learn to do.

Let’s Go