While the market was strong, through most of the week, volatility did little in terms of net movement, opening at 65.72 and closing 65.54 on the week.
What is interesting about the lack of movement is how much the S&P 500 was up on the week. Normally when the S&P 500 picks up 240 points in a week, one would expect the VIX to be down.
Here is the problem, the S&P 500 was not up 240 points in a week. It was up over 400 points from Monday’s close to Thursday’s close. On Monday and Friday, it was down 60 and 90 points respectively.
The point is, the rally this week was almost as unhealthy as the sell off the previous week bringing with it HUGE day to day movement. Take a look at realized volatility over the last 20 trading days:
20 day realized volatility is 95%….95% I am pretty certain this is the highest 20 day realized vol ever, certainly in the last 90 years.
The VIX curve remained pretty constant this week. After April became oversold last week it made up for it by basically sitting still all week, although it was up on the week marginally. May which was expensive relative to April normalized by sitting in place, doing nothing.
We think realized volatility almost has to come in this week. 95% simply is unsustainable. Now that we have gotten down to 2500, I expect sell offs to be softer than rallies, as there is some ‘fomo’ fear on rallies right now. Everyone wants to know ‘when to buy.’ Good news for us, we will know using our traffic light.
I am thinking this next presents a lower VIX and a choppy S&P 500.
The Traffic Light
The VIX Traffic Light is YELLOW.
This means there is little edge in buying OR selling VIX Futures or ETP’s.
Your Only Option,