Yo Pit Crazies,
The drop in the VIX has been notable.
Thirty-five to 25 in just a few days is pretty beefy.
But all is not safe and there are some very important things to consider while taking your next trading steps.
How you read the VIX now will impact your profits.
VIX Term Structure Is the Sine Qua Non of Forecasting Tools
For all of you not into Latin idioms, that means VIX is an “absolutely necessary” indicator to the whims of traders.
Below, Vol Man notes some areas where the lowest recent level is when folks were worried Putin would invade. Then the news about a stray missile in Chernobyl. Then the pop when oil went to $130 per barrel.
VIX 3 month chart
Where we are now is on the far right. From an absolute level, the Ukraine crisis is still priced in. Not as heavily as the peak, but still not good
From absolute VIX numbers above, we move to relative VIX futures numbers below. As you can see, the VIX futures curve below is flat with all terms about $1 in range.
The only thing not flat is VIX cash, in green, in what I call a “right bastard contango.”
The flat VIX curve is a signal the index is primed to move up or down in shock. The futures over cash is a signal the daily moves should aim every so slightly down.
The curve says the situation is calming but remains volatile.
Sounds about right.
I still like VIX April strangles with the extra long cycle but leaning short VIX.
The Rundown
Capitol Gains w/ Frank Gregory
We added an ExxonMobil Corp (Ticker: XOM) call calendar to Cap Gains. The setup video is here
Power Income Trader
Bill and I added a long iShares Silver Trust (Ticker: SLV) call spread and long SPDR Select Financials ETF (Ticker: XLF) put spread running even so far.
If you’re already a Cap Gains or Power Income trade, call Customer Care from 9 a.m.-5 p.m. ET for special pricing at 1-888-872-3301.
Big Money Flow:
Mark followed the flow in Macy’s Inc (Ticker: M) when the market looked ugly Tuesday and printed a long call win for 93% yesterday.
Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session.
Pro Room went Uranium Thursday.
Volatility Edge & Volatility Trading Club:
The Option Pit VIX Light Is yellow as the curve is flat.
To Your Trading Success,
AG