Yo Pit Crazies,

The unfolding crisis in the Middle East is painting social media with terrible images.It’s a bad situation and can cloud the daily sentiment. That’s totally understandable.

Nonetheless stocks rallied Tuesday and even took off for a while in the afternoon to jump 1% on the day. My theory is that the bond market is now doing J-Pow’s job for him: news looks bad but stocks rally as the bond market is back in control. Even when things seem red, the market finds a way to see green.

SPX 6-month chart with 30-day IV on the bottom chart.

As you can see from the big candles in SPX, traders are trying to get past the headline news and look into next year and beyond. The stock market and volatility are a discounting mechanism. While stocks are jumping back, volatility has not been ready to drop all the way back but is responding despite the Mid East turmoil.

What does the IV look at for a target?

Volman Notes Realized Volatility Is Still Quite Low

30 day average realized volatility is just over 12%.  VIX is still 15% so there is some room for VIX to drop.  Realized Vol has gotten to 10% over 30 days in 2023 once stocks took the highs of the year around 4600, only 200 points from all time highs.

SPX 6 month chart with 30 day IV and 30 day HV on the bottom chart

The big selloff only had modest lifts in realized vol. Mostly the IV pops were huge relative to the moves we have had this year. I am going live on Wednesday with my 2X VIX Futures ETF (Ticker: UVIX) trade.  There are a lot of opportunities into the end of the year… especially trading this split. I can’t stress enough the opportunity to trade this… I am out of my shoes excited for it.

I plan to grab some of it. Jump into the Trading Desk to see what I am going to do and let’s trade together.

To Your Trading Success,

AG