BY ANDREW GIOVINAZZI
February 2, 2024
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…Keep ready for my surprise for next week!
Last Week ending Jan 24:
The Big Call
“FOMC and Big Tech earnings which are major volatility catalysts. Friday was the first day IV relaxed in SPX so the early part of the week should be calm waiting for news, with the end of the week likely to make new lows in VIX. The low 14s is achievable but I expect SPX to have a larger range of at least 150 point SPX. VIX is expecting more positive news out of the Fed and earnings so I am leaning to 6200 SPX by the end of the week.”
Weekly Wrap up
I gave myself a C- this week. SPX had a big range, over 200 points, but as is the way with markets, overnight news can send traders into a tizzy. VIX only hit the high 14s and SPX was on its way to 6200 when tariff news crushed the rally. I did expect a big range and was able to take profits in some products.
Deep Seek AI and Nvidia Corp (Ticker: NVDA) dominated the headlines earlier in the week. So far my take is that the complete story is unknown, but DeepSeek did use some other sources and possibly a lot of NVDA GPUs. The INVESCO QQQ Trust (Ticker: QQQ) lost some value and most of that money flowed to other names in the SPX. This really was an interesting week because SPX was able to get close to all time highs but most of the top tech nowhere near all time highs. Stocks can rotate and for the most part that action is healthy.
I would be remiss to not mention the weekend Tariff Tantrum. The uncertainty around a new more aggressive policy has the algos going nuts. The short answer is to take profits faster since the intraday moves are nuts. A good time to join Licia with how to manage a book of options. The flip side which is not getting enough attention is D.O.G.E. is looking for $1 trillion in US Gov savings in a year. That is very bullish bonds and should add long term stability in the midst of the noise. More on that below.
The Options Insider Radio Networks Vol Views is a little extra volatility insight with Mark or myself every Friday.
SPX daily price action over the last 30 days with 1 day candles
SPX Sigma (volatility per term) for Feb, Mar, Apr
SPX got to whisker of all time highs and ran over 6100 AGAIN THEN GAVE BACK 1%+ in 30 min Most stocks recovered in the SPX but NVDA this week. That is very healthy. The tariff announcements are going to make things swing. SPX for the day was only down .5% which is only an 8 VIX but the intraday move was more like a 24 VIX.
Note the sigma IVs STARTED TO DECLINE but blew up. This was a relatively big week in that the intraday moves were large but SPX kept getting back to a down 1% Week on Week.
SPX realized volatility snap on Feb 2, 2024
Realized volatility for 10 days (HV10) is now 13,00%. The 60 day realized (HV60) is 13.78
These realized vol numbers belies the intraday average true range (ATR) which is 1.5x at least the realized volatility. I call this orbiting volatility because SPX goes up and down like a yoyo.
VIX Volatility Curves
Closing VIX curve, Jan 24, 2024
Closing VIX curve, Jan 24, 2024
The VIX curve stayed in contango but all the VIX futures are $1 higher. The market is pricing implied volatility higher after this week and I cannot blame them. That will likely remain as long as this tariff thing keeps ripping around 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
VIX ZONE 4 24<
VIX is in Zone 2 and the market recovered with VIX lower all week until the tariff thing sprung. News agencies being quick on the draw are causing some big swings in SPX. On the one hand earnings pulled VIX down, but Donald and the Tariffs are making VIX go the other way.
VIX 30 day chart with 1 min candles,
VIX not making new lows is bearish SPX. Since most of this action is news driven it can go the other way in a heart beat. VIX making new lows this week will be tough with the chance of a random announcement pouring gas on the fire.
The Big Call
Alphabet inc (Ticker: GOOGL) earnings and Palantir Tech Inc (Ticker: PLTR) this week will tell us who is making money with AI. So far most earnings have been well received and earnings insight will help divine NVDA next direction. Bond action last week holding up is a net positive since that changes the inflation narrative. D.O.G.E. – tariffs should be a net positive and few traders think any heavy tariff will hold out for long. The intraday ranges are real and 15 VIX is the lowest I think we get. 6100 is a reasonable top for the week but we will see 5900 first from a weekend reaction.
Andrew Giovinazzi
30-Year Trading Pro
See what's hot at option pit
CAPITOL GAINS: SMR Aug16 7 call closed for a 150% gain
DELTA STRIKE: VLY Mar15 8 puts closed for a 88% gain
PFE May17 26 calls closed for a 66% win
OP MENTORING: SPY Mar22/19 510 put calendars and 520 calls for 6.4% gain
OPTION SHOPPER: ERX Mar28 65 calls closed for a 90% gain
The VIX future pop was good old supply and demand. Is the VIX call buyer right? Time will tell but my Weekly Profit Cycles strategy does not care because I am always holding market downside protections via VIX calls or SPY puts.
If this market gives you the jitters, take a look at what non-correlated market returns can do for your portfolio.
To Your Trading Success,