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The market has been looking for a game changer in the fight against Covid-19.
I have been arguing that when we have a clear idea of when the US gets back to working, the market will find its reason to begin selling volatility and developing multiples that make sense.
Frankly, VIX is not going to drop until the amount of stay at home orders drop. We may finally be at that point.
News out of Texas and Ohio is that they plan to turn on the economy on May 1. THEN we got HUGE game changing news:
GILD has a drug that appears to work. Patients treated with Remdesivir at a Chicago hospital showed REMARKABLE results.
This would mean that Remdesivir could be the ‘tamiflu’ of Coronavirus…the drug that dramatically reduces the effects of CV19 on patients.
If the data is true then Coronavirus DOES become the flu. If CV19 has a similar profile in terms of infections as the Flu, the US is going to be back to work and firing on all cylinders by July.
So what does this mean for vol? We could be on the cusp of a NASTY rally in markets, notably hotels and airlines.
VIX will drop, probably too fast.
This means that, believe it or not, owning premium in a falling vol market will be the way to make money.
I know it sounds counter-intuitive, but the trade will be a ‘short time spread’.
This means the trader will want to be long near dated calls against short longer dated calls. Long gamma, short vega (sometimes kappa) will be the way to make the best dollars.
We will know more today, but this could be the game changer.
VIX Light: Technically Yellow, but I may trade it as if it is red tomorrow.
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