Old … but useful.
Like slippers, hound dogs and the trusty putter you use to pretend to be using to win The Masters.
Some of my meaner students might even describe ME as old but useful.
Old and useful might describe myself to the glee and laughs of my Option Pit Students.
But I’m still kicking – with volatility voodoo, at the very least.
Let’s kick the VIX tires today and see what the skew has to offer us.
Reading SKEW is your old and comfy Vol Slipper
Andrew, you’re taking us into the weeds of skew.
Fear not!
Here’s skew defined by the internet …
I think of it as the deviation from the Black-Scholes assumption for a flat annualized volatility to expiration. The problem is pricing moves that happen quickly.
Mostly those moves are down, unless you are in the COVID era and sometimes they are quite up …
That leaves us with higher implied vol overall.
On Tuesday, about 40 min after the open, I turned on the Edge Hunter Curve and started tracking S&P 500 skew in the April 14 cycle.
Lo and behold a uniform rise from the blue curve to the orange curve. That means IV in SPX moved evenly across the curve into the close with a slight skew up in the downside.
Vol Man, pictured above, is not noticing a big “kink” in skew, just a day where the SPX moved a bit more than the 30 day implied vol predicted. A tweener day.
The Fed will spill some beans this week on rates, but the tone has become hawkish, to say the least. And I agree with Bill Griffo, who think’s it’s too late.
Plus, stocks might not like it and VIX rose to new levels of worry.
The Old Show: VIX prices for the next move, not the current one. Watch as I explain it in this Trading Legion Small Group session right here.
While the SPX will move, I don’t think it will be earth shattering. At least not at the current price levels. So we would need sustained 1.5% moves in SPX to press IV higher.
The Rundown
Capitol Gains w/ Frank Gregory
I closed some iShares Global Clean Energy ETF (Ticker: ICLN) calls on Tuesday for a 35% profit and left me with puts for a credit.
It will be among the topics discussed during our live event this Thursday at 11 a.m. ET.
Option Shopper
Licia going with fertilizer in Mosaic Inc (Ticker: MOS) April 8 67/72 call spread closed for a 44% gain
Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session.
Pro Room working some ProShares Ultra Short Term VIX futures ETF (Ticker: UVXY) puts today. Most of us think this vol pop is short lived. Wonder why? See above.
Trading Legion
I bought some SPDR S&P 500 Trust ETF (Ticker:SPY) April 20 455/445/435 put flies with just one upside SPY last week.
I closed the put flies up 70% and now I am riding a straddle for almost nothing to April 20 with the calls now looking like they might pay.
Volatility Edge & Volatility Trading Club:
I added UVXY puts and a call on a 10-to-1 ratio today for trade No. 288.
Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!
To Your Trading Success,
AG