VIX closes near lows of the week, SPX near highs but…

BY ANDREW GIOVINAZZI

September 16, 2024

Hey OP Crew,

You want to learn how to do some big time option trading, try it out here.

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

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

Last Week:

“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?”

The Options Insider Radio Networks Vol Views is a little extra volatility insight with Mark or myself every Friday.

Talk about an orbit!!! SPX rallied Monday and Tuesday on 100 point range days, crashed Wednesday after the debate, recovered the same day and rallied to highs of the week. Then rallied to new highs of the week after we broke from the lower end of Zone 3 on Wednesday. That sounds very familiar. What we did not get was the next gap fill to 5300, since the orbit of the week started up not down. I will give myself a B-. (Let me know your thoughts on the self-rating system). I probably leaned too short SPY Friday but was bailed out mostly on Wednesday at the lows which I took. Only closed 60% of my downside so it was just an ok week, not a great one.

This week we had CPI which came in ok. Jacking rates up have had some effect for sure but house prices are still very expensive and most basic things folks use like insurance and food are still up and have not come down. Property taxes? Those are up too and no one is getting more for their tax dollar. Gas is not as expensive as it was 2 years ago but the “official” rate is around 2.5% CPI not counting the food, shelter and energy. Add up inflation over the last 3 years and it is well over 15%. Just look at any bill you have from 3 years ago. Besides the inflation rant and some politicians not believing in simple economic theory that has stood the test of time for 100 years or more, stocks still bounced hard.

Why did they bounce? Partly an AI bounce led by Nvidia Corp (Ticker: NVDA) and Broadcom Inc (Ticker: AVGO). I thought I would be able to buy some AVGO shares early in the week, and by the end of the week the stock had launched. The second part is now getting used to just higher prices for everything for a long time. The USGOV is spending $1 Trillion on Interest more that in 2020 per year and all of this nonsense was created by the USGOV. That little nugget hit the market Thursday but did not move the needle. For now AI>National Debt.

Weekly Profit Cycles folks closed some SPY puts Wednesday. The VIX puts are starting to pick up some steam now.

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

SPX Sigma for Sep, Oct and Nov

SPX closed at the highs of the week. 5400 is the new low area for the last 3 downdrafts. The most important thing to note is that the sigma vols did not get to the lows of two weeks ago. This is likely because of the Fed Meeting and rate information on Wednesday.

SPX realized volatility snap on Sep 13 2024

Realized vol for 10 days went is still increasing to 18.47 so up 3% from last week. That is some very volatile close to close conditions with the daily ATR, Average True Range or daily highs and lows, are more than double that. The orbiting volatility is not going away yet so expect outsized SPX moves.

VIX Volatility Curves

Closing VIX curve, Aug 30, 2024

Closing VIX cash and curve, Sep 06, 2024

It is hard to have a more dramatic change in the VIX curve in 7 days but I present to you the exhibit above. This is some crazy changes in conditions and market sentiment. Also note that the Oct/Nov VIX curve is getting back to normal. For whatever reason, Election Volatility sentiment took a turn down this week.

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 are here

VIX ZONE 3 18-23.99 We were here

VIX ZONE 4 24<

VIX started in Zone 3, bounced around that made a break for Zone 2 and stayed to the close. Overall this is very bearish VIX and a big change in expectations now that 30 day VIX has dropped under realized vol. Realized vol, from above is the mid 18s, and VIX and 30 day expectation is now below that so traders are selling the current ranges getting ready for lower longer term ranges.

VIX 30 day chart with 1 min candles,

VIX closed at a low into the week which is normal. Near all time highs in SPX with VIX 17 is not so there is still one bigger move left in SPX.

The Big Call

What a difference a week makes and prices that no one thinks we can get to somehow are achieved. That is why I like Two Way Trades. For this week it is all the FOMC. How do you know when the Fed is doing a bad job? The market has to hang on every word and that means they are too active and fixing all the mess they created. That is the market we have so we trade that market. I expect SPX at least 100 points from where we are and the market wants a .25% cut to stay in line with the ECB. The only real question is if we get to 5700 before or after the Fed announcement. Post Fed announcement move to 5700 i think will be more healthy and lead to the VIX lows of two weeks ago. There is some headline news with the Russians and of course any mess in Ukraine/Russia sends the market into a mess. I am hoping that does not happen.

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