The VIX Pulled Back … Will It Remain There?

Yo Pit Crazies,

 

The VIX sold off a bit on Monday, stocks looked strong and the S&P 500 (SPX) rallied near 1%, which is only a 16% volatility

 

So the action was positive today and that chopped the VIX down.

 

 

What hasn’t changed is the Fed will speak next week and expiration will be well after the announcement.

 

What did change is the VIX curve is dropping back into contango again so we have the orbiting volatility once more.

 

So will it orbit higher or lower?

 

Let’s see what the curve says.

 

VIX Is Like A Kid on A Swing

 

Note the purple Dec. 3 close on the VIX curve where the Dec future, spot month, was much higher than everything else … 

 

 VIX term structure for Dec. 3 and Dec. 6.

 

That usually notes max fear for SPX.  For whatever reason on Monday, maybe due to the preponderance of news on Omicron being not as lethal, some of that topline worry came out of stocks.

 

So what does this mean? Well things are still volatile for VIX.  A trade I put on yesterday has to be something I can close easily if VIX breaks out of the Zone 4 (24+ Danger Zone for SPX)

 

orbiting mode.

 

Remember that VIX is still well in the higher quartile so it has not broken out of the initial vol event.

 

I like long the VIX Dec. 22 25/35/45 call fly and long VIX Dec. 22 20-strike puts on a ratio of 1 fly to 3 puts. This will most likely be going into the Volatility Trading Club.  

 

If we keep the same condition, the position will make a little. But if the market discounts the Fed like it usually does, we should see a 16 handle and nice surprise from Santa.

 

The VIX curve jumped from backward to contango and that is a sign of the market changing its mind and once again leaning downward VIX direction.  The option position has to be ready to roll with it.

 

There’s still time to catch up on this weekly live course — and certainly no better time than with a Zone 4 VIX.

 

The Rundown

 

Capitol Gains w/ Frank Gregory
Option Pit DC and Wall Street insider Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K Street knowledge and my options expertise.

      • Look for a Petrobras SA (Ticker: PBR) risk reversal (long call, short put spread) this week. The stock has been crazy strong this week.

 

Power Income Trader:

Power Income Trader is a systematic approach to trading inflation.  By pulling real-time data from the Fed, US Treasury and Gov't, Power Income Trader alerts users on changes in money flow driven by Fed policy. Bill's system puts you out in front of the most powerful money flow in the world.

 

      • Bill has been adding to his high quality miner positions this week. The Fed never is as hawkish as they claim to be.

 

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 Pro Room a bit skeptical of the rally holding yesterday:

 

 

Big Money Flow

Each week, Option Pit CEO Mark Sebastian looks at size institutional option buying with a twist.  He mostly buys calls or puts to ride the large momentum trades.

 

      • American Airlines Group Inc. (Ticker: AAL) took quick profits as the Omicron nothingburger is proving to be just that with a 50% gain.  
      • First Energy Corp. (Ticker: FE) in for .90 out for 1.45 or a 50% gain.

 

Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active MEME  names.

      • DraftKings Inc. (Ticker: DKNG) calls got the nod for a 90% win!

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle/calendar trading vehicle. The goal is to teach students the best times to buy options.

 

      • I closed my Apple Inc. (Ticker: AAPL) strangle calls for a 50% net position gain.

 

Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside Cboe Volatility Index VIX, iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) and ProShares Ultra S&P Short Term VIX Futures ETN (UVXY) options.

The Option Pit VIX Light Is Green as VIX moves into severe backwardation. Expect  big moves intraday in SPX.

 

I still expect a high degree of movement in VIX and I am adding more leverage, puts with some upside, to the Dec. cycle.

 

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

 

To Your Trading Success,

AG

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