Yo Pit Crazies,
Fed meetings are always vol events. Generally VIX stays bid heading in, then we get a vol selloff … and the occasional nasty surprise.
We already got a volatility surprise this week when the VXX decided to untether from its net asset value. I made a video explaining that here.
See what the means for the vol complex going into the FOMC meeting …
VIX Options Volume Will Only Grow Stronger
There is now a graveyard of dead short volatility product tickers ZIV, XIV, SVXY … and a long one in VXX.
Somewhere along the line the assets under management for VXX got too big for the futures the issuer had to buy.
Prior to Vol-mageddon, SVXY’s asset value blew up after a low-volatility year, only to implode when it could not effectively cover the short futures it needed to buy on a VIX spike.
XIV suffered a similar fate.
With VXX assets growing to a huge amount, the potential liquidity problems caused the issuer to tap out.
With a solid bid in the S&P 500 today, VIX fell below 30 for the first time in a couple weeks.
Depending on the Fed language this afternoon, a hawkish inflation stance would end the SPX rally in the short term as we dig in for higher rates and what is likely a small recession in Q2.
I have a small backspread in VIX going into the meeting, and I will probably add a little today. The VIX curve is still signaling either direction, so I think it is best to trade it that way.
VXX is no longer a reliable direction for the VIX futures. Another great product bites the dust.
The Rundown
Capitol Gains w/ Frank Gregory
Get ready for a long oil trade this week, most likely ExxonMobil Corp (Ticker: XOM).
Power Income Trader
(And if you’re already a Cap Gains or Power Income trade, call Customer Care from 9 a.m.-5 p.m. ET for special pricing at 1-888-872-3301.)
Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session.
The talk in the Pro Room yesterday was the demise of the VXX as it spiked $10 today on a 0 move in VIX.
Cat with a nice trade today
Volatility Edge & Volatility Trading Club:
The Option Pit VIX Light Is Green, as the market for VIX futures is in full backwardation. SPX is still going up and down with around 2%+ moves per day. 16 days of over 30 VIX broke today as the market gets used to all the crosscurrents.
I added a VIX call spread to trade No. 284 for a delta neutral backspread in VIX.
To Your Trading Success
AG