Yo Pit Crazies,
The problem with trading is that we trade with our ideas.
Sometimes they are right … and sometimes they are wrong.
Sticking with a disciplined method is hard for everyone and comes only with practice.
But the cues for market moves are there … It’s just learning how to recognize them.
And that is why vol trading is great for options.
Liquidity providers price what they think is happening now. That is the first trick.
I should know I was an LP for 15 years.
The second trick is for how long – how long will stocks keep with steep intraday moves.
SPY one-tear chart with 180-day implied vol on the bottom chart in brown
As the story of young Conan the Barbarian told, “This is a tale of sadness and woe.”
The Long-Term Drop in Long-Term IV Has Stopped
In and of itself, that drop is not disturbing … as long as the uptrend in long-term IV doesn’t continue.
Realized vol, the blue line in the chart above, has been steadily decreasing for two months. That is a very strong trend.
Long-term IV does not go up without a reason.
There are buyers out there, normally funds and institutions, buying longer-dated options. Year low in IV brought them in.
The question is if they are buying for the next leg up or down?
Right now, I think that is a leg up.
The Fed once again did not change their stance in the release of its meeting minutes this week.
Rates will stay elevated until inflation goes away. The consumer inflation number (PCE) on Friday morning might help a bit.
I am still going with the market slowing down and stocks drifting up … but traders are making longer term options more expensive.
Looks like another try at 4200.
To Your Trading Success,
AG