Wednesday was a political event (and sad in that someone lost their life).
However, as the VIX was popping and markets were selling off, I was not jumping on the long volatility bandwagon.
I was shorting vol.
In Little John I made the call to buy puts on UVXY.
I also used that time to find opportunities to get long the market and short volatility.
Because it was what I call a ‘one off event’
One off events are moments in history, these are moments that while jarring emotionally, do not have a systemic effect on markets.
Take the day Osama Bin Laden was killed…
This is a chart of the S&P 500 from 2011, can you spot the day we caught Bin Laden?
Here is your answer in the blue circle:
It was May 2nd.
I remember the day well….
Pre-market we were up 20 points, which at the time was 1.5%.
By the time we opened, the market was only up 7 points.
Believe it or not, we actually closed DOWN 2 points on that day.
If you are not familiar with markets, you are probably surprised. I mean seriously:
Probably one of the 3 most hated men in modern history killed…
…and markets sold off.
Here is why?
It did not have any real effect on the US economy, it did not change how people lived their lives, and it was not a catalyst for some sort of follow through.
The War on Terror continued…
These types of events cause VIX spikes.
Moments in history where the VIX makes a wild move higher, before quickly giving way. Take a look at an intra day chart of VIX.
…people went about their lives….some (myself included) a touch happier.
Wednesday’s events were that type of event.
Take a look at a tick chart of the VIX:
VIX went from 22.5 to nearly 27, a clear spike.
But I firmly believe that it will be back to 22.5 or lower by Friday.
Why? Because Wednesday was a great chance to go on social media and condemn those idiots but in the end, has no effect on the outcome of any of our days.
Thus the fade.
This was an event spike, not a VIX swell.
Covid, is different…
The financial crisis was different…
These are long lasting events that had a profound effect on the economy.
These are the events that cause the VIX to swell higher.
When the VIX does this kind of spike movement, it is like a freight train.
It is unstoppable until the train itself decides to slow down…or runs out of Diesel.
Take a look at how the VIX slowly swelled in 2020:
In Feb and March 2020, the VIX was relentless.
It went higher every day, and when the market was up, it did not fall.
It kept going and going till it FINALLY ran out of gas at the end of March.
These are the type of events that are driven by an economy changing catalyst that vol higher.
Was not one of those.
In fact, it was an incredible opportunity to get short volatility.
There is a reason VIX futures still closed down on the day Wednesday…
Professional Volatility Traders know to fade VIX Event Spike Vol
Your Only Option,
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