Stocks will be volatile …until they are not
Real Growth Concerns in 2018 increase Volatility
$SPX is generating huge volatility this year. While the market has had bouts of volatility in the past, 2018 is shaping up to be the opposite of 2017. $VXX could be up on the year, though less likely now after the G20 love fest between Xi and Trump. The same set of conditions that prevailed at the beginning of the year, G20 deficits, Trade Wars and rate concerns, spooked the market enough to put us at crazy 2 week ATR numbers.
6 Year Highs in Realized Volatility
Just look at the TradeHawk chart and it is easy to see 6 year highs in sustained volatility for the beginning of 2018 and into the close of the year. $SPX realized vol lows in 2018 were the highs in 2017. What that means is the market jumped into a different gear this year as it reacted to different factors. The only story last year was Russia-gate. This year real problems could take down the bull and it freaked everyone out. In order for VIX to subside, we need some ATR numbers into the 3’s for $SPY or less than 1% per day on average. Today was a relief but still a big range.
Trade the Volatility Conditions in Front of You
What market pro learn to do is respond to conditions. Different trades work better under different levels of VIX. Right now for the first time in a while the VIX term structure settled into contango with a VIX of 16.35. It has been quite a while since I have seen such a high settle with a curve sloping up. Traders are again adding time value in the future and not discounting the future price with the backwardation we saw just last week. I think this is a big change.
I write a Volatility Newsletter that has curve specific tradesevery day and I did post an idea today. It is short volatility delta with puts but long realized volatility in SPX in the short term. I that is the ticket as realized volatility is less, but not gone yet.
If you want to learn how to position for VIX future curves- take our VIX and VXX Made Easy Courses here.
Disclosure- positions in $VIX, $VIX, $VXX
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