Best hedge in the world

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

November 9, 2023

Yo Pit Crazies,

My ace Edge Hunter sheet maker is looking at skew as I try to get a more short term skew sheet for short dated options.

Note the 1st skew print is the blue line and the closing print is the orange line.

Upside vol is dropping a bit more than downside vol for Friday’s options.

That is a skew slope change. It does not look like a lot but remember there millions of Vegas behind the curve changes so that is a lot of dollars moving around against the open interest.

When IVs drop in the short term, that affects the longer term so to speak.

Think of it as the ankle bone connected to the leg bone, the leg bone connected to the hip bone, etc.

The 1 week vol connected to the 2 week vol, the 2 week vol connected to the 3 week vol, the 3 week vol connected to VIX! That will move the VIX futures.

SPX Nov10 skew curve with EH curve (beta)

That will move the Vol Products. This was a live conversation in the Pro Chat with one of my students.

How things can move, even when they don’t.

VIX cash does not need to move for VIX futures to move

In the Pit Report Monday, I bought some Vol shares 1x inverse VIX futures ETF (Ticker: SVIX) calls for a “loose” volatility hedge against my Mosaic Inc (Ticker: MOS) strangles. The strangles in MOS “owned the move” and the SVIX calls got short “vega”. I set up a scenario where if the market did not move too much, my SVIX calls would pop. The Mosaic strangle would create more value if the market moved a lot. SVIX is short Nov and Dec VIX futures.

Just close the stuff that wins.

What we have now is a situation, that Dejan was alluding to, where Nov VIX puts can gain value while Dec and Jan hold value. I want to roll my Trading Desk Vol Shares 2x VIX futures ETF (Ticker: UVIX) puts for a profit tomorrow to Dec with a cheap Jan hedge. UVIX owns Nov and Dec futures.

One side can move, while the other doesn’t. I will explain it in the Trading Desk but it is a way to keep market neutral exposure but still make $ if the market moves.

Crazy.

To Your Trading Success,