I need to handicap the VIX

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VIX and VXX made Easy are  very popular

Is handicapping the VIX a fool’s game you ask?  It depends who does the handicapping.  As of right now the daily move in VIX is up or down $2 depending on the direction of the Tweets or responses of the various parts of the Executive Branch.  Ultimately VIX prices the 30 day volatility so one needs to figure that out to handicap the VIX effectively.

Today’s move but discounted 30 days for VIX

If SPX moves 2% today, the very near term options will jump to the high 20s or low 30s for volatility.  VIX might move only to 18 or 19 because the long term change in the current volatility curve is not yet apparent and it is not enough to change the price of volatility in SPX 30 days out to the full number.  The value of a  3 day straddle is vastly different than the value of a 30 day straddle.  Depending on strike and time, 3 day vega  and 30 day vega are .72 and 3.21 or roughly 5 to 1.  5 points of very near term vol will push up long vol 1 full point give or take.

snap via Cboe Livevol

30 Day SPX straddle is about $100, too much or too little?

Will the vol regime change in 30 days?

If the perception that VIX is going to fall is the play, that means the next 30 days will be less volatile than the most recent history.  Even if that is just for a day or two.  That is what has been happening lately as the no deal, yes deal Trade Talks keep moving back and forth.  If I am handicapping the VIX for the next 30 days, I would guess it would do a lot of the same but in a tighter range.  We probably don’t see 12 VIX in 2 weeks and we don’t see 20 either.  That changes a lot of the interesting VIX and SPX trade ideas.

SPX Iron Condor time

The more range bound the more an Iron Condor could work.  VIX is still 16 so there is juice to sell.  Even a 2 week hold could work since a seesaw market tends to depress Iron Condor juice.  Jun VIX options make nice hedges.

Disclosure SPX VIX postions

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