Yo, Pit Crazies,
Option Pit macro expert Bill “I Have A New Beard” Griffo thinks big things are afoot with the new consumer price index calculation.
Basically, the numbers have been put through a slightly different prism that should see the CPI number come in lower by default.
I think the market is getting ahead of the release.
As an old school vol trader, I find implied volatility is a great signal.
The question ahead is in which direction? Well, it’s not what you think.
What is it signaling? Vol Man will tell all.
Think in terms of Vol Regimes
The last 3 years have been exciting if you are a Vol Trader or just the average investor.
One minute everything is cool and the next we are all going to die, with many accounts left in ruins. That is the definition of volatility because you can feel it.
My first lesson as a floor trader was you were learning when you could feel the loss. I could actually know I was about to get smoked before it happened because the trend was moving in a direction and as a market maker you wore the position until it stopped moving.
It felt great. Not!
For retail trading, I call that “vol regime change.” Things are one way for a minute and the next minute they are not. Volatility is coming down big time in the long-term as shown by the 180 day IV chart below …
In the chart above, Vol Man is showing the three low ticks for 180-day IV. We are at the low for the interest rate vol regime, but still not at lows since before COVID – or the lows in the liquidity-fueled bull market in 2021.
The big question is if we get past the FOMC minute release. As of right now, traders have sold back-month IV aggressively, pushing down prices. They wouldn’t do that if they think rate problems will get worse. The signal is breaking out of the regime to a new lower regime.
That brings lots of junk VIX puts in the 16 handle into play. Mark bought some in the Sept cycle for The Trading Desk and I added some short-term 17 level puts.
I think we will make new lows for VIX this week into next.
Now let’s see if those long-term vol traders were right!
The Rundown
Big Money Flow
Mark booked a fat win in Lithium Corp of America Inc (Ticker: LAC) with Feb. 17 20 calls closed for a 172% gain
To Your Trading Success,
AG