I have never seen this before

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

October 10, 2024

Yo Pit Crazies,

Hopefully things go ok for my Florida peeps.

There we are running into the close once again as the traders reread the FOMC minutes and surprise,surprise part of the Fed Governor cabal did not want the .50 point cut. They thought some conditions warranted easing, just not the 6.4% of GDP the government is spending on “priorities”. 4.5 Trillion dollars in spending in 2019 gets a “hold my beer” 6.5 Trillion dollars in spending for 2024. 1.8 Trillion dollars in deficit spending and the dangerous precedent started in 2020 show no signs of abating.

That is not stopping stocks for 1 min. The end of day trading patterns still are very strong.

We are also looking at the highest volatility of the year save for the Aug05 meltdown.

What to do, what to do?

High VIX, Backward Curve and High SPX price!!!

In the Trading Desk I wrote this in the class notes.

“The Election is becoming a monster

3 Market Conditions I have NEVER seen before at once:

SPX at an ALL TIME HIGH, VIX in Zone 3 almost Zone 4

VIX is Zone 3 with realized vols for SPX in Zone 1

VIX in backwardation with SPX at all time highs”

I am going to say one or maybe two conditions but never three and never to this extent. Normally with the VIX curve like this I would be expecting the market equivalent of Hurricane Milton. Heck just a rising VIX and SPY would usually be a blowoff top that sells off.

VIX curve Oct 09, 2024

I came up with a tidy strangle trade for the S&P 500 trust ETF (Ticker: SPY) in the Trading Desk today. With the CPI/PPI combination coming out on Thursday/Friday morning my guess is that somehow inflation will be very benign a month before the election. That should launch SPX since it has been good for 100 points in the past. A bad number could tanks stocks or at least back to 5600.

Right now, this VIX is about the election and the squeeze up in markets since there is a lack of sellers of volatility past Nov 08. I think the Oct18 and Oct25 terms have good value for option buyers in SPY. Realized Volatility might be dead low but it has been in one direction.

If you want to see how to capitalize on the daily squeezes playing slightly longer term options this is a good place to start.

To Your Trading Success,