BY ANDREW GIOVINAZZI
May 6, 2024
Yo Pit Crazies,
If you missed Licia spear the market with a pitchfork, check it out here. If you want to learn to make weekly income buying options, not selling them, check out my Weekly Profits Cycles.
It seems like what is old is new again and that is the VIX curve dropping back into contango. I tell my students in class that it is reasonable to assume that VIX and volatility can make 30 day lows, but have a hard time making new lows. Mostly this is from observation being a floor trader for 15 years, trading volatility and making a decent living at it.
Volatility has memory. Any news item can change the trajectory of stocks.
More bad news = more volatility
Less bad news = less volatility
Since we have some short volatility positions via VIX and the Proshares Ultra Short Term VIX futures ETF (Ticker: UVXY) you might wonder if this is it. Is this the bottom for volatility?
The answer might surprise you.
UVXY does not follow VIX, but the VIX futures
The drop in UVXY from $40 to $30 has been great for our UVXY trade but recall we waited to add for a few days while the market digested the Middle East mess.
6 month UVXY chart
In contango, that is, VIX futures sloping up from near term to far term, VIX futures decay to the green VIX cash line every day. UVXY owns a decaying asset, the VIX futures, just like options. Each day passes and the value of the assets drops.
This also means UVXY can drop indefinitely until there is news to change the trajectory. Right now, the news is bad for UVXY as the market breathes a sigh of relief.
To Your Trading Success,
-AG
Andrew Giovinazzi
30-Year Trading Pro
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