Stocks near all time highs, VIX almost 1 year lows

BY ANDREW GIOVINAZZI

June 9, 2024, 2024

Hey OP Crew,

AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…

If some of my Option Volatility Jargon is vexing, our Glossary is here.

Last Week:

“This is a slower news week with the Fed out with the latest announcement the following week on the 12th with VIX expiring the next week 18th. We could dip back to the low 12s or 11s this week with SPX keeping to 1-2% range. Without more earnings or market catalysts, SPX might hold the crazy Friday rally and try for 5300 again.”

I am going to call 100% win on my ouija board guess. I held all my VIX puts in Weekly Profit Cycles to the end of the week. I did not close my SPDR S&P 500 Trust (Ticker: SPY) put spreads Monday when they were green. The VIX puts should pay for them but just a ho hum result. Read on to see if we should get some SPY put action.

SPX erased the early week selloff and kept tight ranges. The hype of the Nvidia Inc (Ticker: NVDA) split is taking over the market and since I was out most of the week I had no dog in that fight. To a large degree, I believe NVDA post-split will set the tone. Markets like a winner. Very near all time highs and we are riding AI tech exploding higher. Investors are betting on neverending demand for semiconductors. The total available market (TAM) for chips in AI is pricing at limitless right now.

SPX daily price action over the last 30 days

SPX got to an all time high Friday before backing off. I was not watching news feeds but it likely was some algo snippet. Some G7 countries are lowering rates and it will be interesting to see if the Federal Reserve holds the line on Wednesday, The USA has a larger spending issue in the Federal Government than the EU so how do they go from hawk to dove in a month with hot inflation data will be an interesting dance to watch.

SPX sigma (Vol per term average) levels over the last 30 days.

Sigma Vols are not at all time lows. This is the best signal that the market is anticipating some action into or out of the FOMC meeting. Sigmas should be at year lows but they are not. If the Fed holds the line on rates the dollar should climb and metals weaken. With gold finishing the week at the lows, the market is betting the Fed holds the line. Still a 12 VIX is not much of a bid.

SPX realized volatility snap on Jun 07 2024

Realized vol is near lows. It is not low enough to drive VIX to the bottom of Zone 1 yet as we need single digit 30 day realized vol (HV30) for a month or more. It is low, but can go lower. It also makes a 12 or lower settlement for VIX this cycle very possible.

OP VIX Zone Watch

VIX ZONE 1 9-13 we are here

VIX ZONE 2 13.01 TO 17.99 We were here

VIX ZONE 3 18-23.99

VIX ZONE 4 24<

VIX ended up .70 lower after the trip to Zone 2. Pretty normal action after a small selloff. The VIX curve is totally normal going into the FOMC Wednesday so the market is expecting consistent policy, which is to hold the line. VIX futures dropped .70 in the front end so the early in the week curve flattening is gone which signals lower vol expectation in the future.

Closing VIX curve, Jun 07 2024

Closing VIX cash and curve, May 31, 2024

The VIX curve is in a normal contango shape save for the Election Volatility Premium in the Oct cycle. The net cost of that contract keeps dropping but not by much. This is a good example of how VIX moves term to term. The market is not pricing for any real disruptions this week.

Basic Vol 101 on our Option Pit YouTube channel.

VIX 30 day chart with 1 min candles

FOMC and NVDA split this week are the big known items. NVDA could well go the way of many splits and selloff post-split for a bit. If those dollars flow to other stocks that likely will be a VIX flat event. Traders are looking for the Fed to hold the line as I described above. Unless there is a big surprise, expect a vanilla summer time week with realized vol in the single digits. SPX will struggle to make an all time high and coast between 5300 and 5375 at a 9% realized volatility.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 13 for 15 for Opens in WPC. So getting paid to own SPY puts in an up market is something anyone can learn to do.

To Your Trading Success,

-AG