Stocks rocket as Fed declares inflation licked

BY ANDREW GIOVINAZZI

September 20, 2024

Yo Pit Crazies,

If you missed the replay of my webinar and want to learn what a stock’s “option fingerprint” is, check this out.

There were a lot of happy Trading Desk roomies making O/N call buys for Thursday morning. I closed some left over call flies in SPY and some GOOGL calls but I did not have a lot of short term longs. I have some longer term longs. Really I was leaning shorter VIX into the Fed announcement.

VIX did drop some, but it is very hard for VIX to drop a lot into a 2% SPX day. Especially when VIX is only 18 the day before. A 2% SPX move is more like a 32% VIX. At least for Thursday it is not going to happen. The move was so steep that implied volatility for the new ATM options did not drop.

VIX 30 day chart

That is why I have some short term trades in my OP Pit products and some long term trades.

What will each do over the coming weeks?

The Fed is claiming inflation is conquered… almost

Rule #1 is Don’t Fight the Fed

Rule #2 is see Rule #1

My short market trades were balanced with some short VIX trades. Right now that normal anti- correlation is stretched to the max. VIX can still pay but it is unlikely to be Friday, possibly into next week. IV at strike has to decline, which means SPX has to stop going straight up. With the Fed lowering aggressively, they are trying to manage a soft landing which is why we are 5700 SPX Thursday.

Don’t Fight the Fed.

On the flip side, there are some long market deltas in my option book. Stocks showing better Option Fingerprints. With headline inflation in the 2s, that should be good for some other stocks besides what AI and chips have been carrying the last year.

For now, the VIX/SPX relationship will get a little disconnected because of the election but that is for Vol Man this weekend. If the good news holds up VIX should 15 next week and other stocks outside of the Invesco QQQ Trust ETF (Ticker: QQQ) should get another look.

To Your Trading Success,