It’s the end of an era.

Ten years of meddling and fine tuning the economy through excessive Central Bank intervention that really yielded poor returns is coming to an end

I view the Fed as a lender of last resort and traditionally a place where they created money. Holding rates at 0% while the White House spent $7 trillion in three years was a recipe for inflation.

Add mandates, supply chain issues and extraction uncertainty for fossil fuel and we were left with a policy-made inflation brew.

Now Uncle Sam borrows at 5% and that will leave a mark to the tune of $800 billion annually in interest payments.

It’s real simple: the biggest, most expensive do-over in history is now just getting back to normal.

That means something in the world of volatility.

New Lower Vols Are In The Cards

As funny as it sounds, it is hard to make money trading VIX calls when it stays around 24. We may see the market move a lot, but VIX does not.

The lower end of VIX to 16 or 15 could happen in the next month or so. Note below that VIX was lower before rate hike talke started in late 2021.

Two-year VIX chart up top with one-day candles and realized vol of VIX on the bottom

Also note the volatility of the VIX index is plummeting.

Over the last 180 days, VIX vol (purple line), is showing steadier declines – or a more normal pattern of VIX.

Not every news item is worth a 4% move in SPX like 2022.

I can pick up 16 and 15 puts in VIX in the springtime cycles of April and May. This is likely the last chance until VIX starts printing those lower numbers. We should see 17 this week if my thesis is correct.

Jerome Powell declared this week the start of “disinflation,” so let’s see if he can get out of the way entirely.

We covered these trade ideas in OPMentoring and the Vol Trade Desk Tuesday. Those are all part of the Pro package.

To Your Trading Success,

AG