The $VIX went mini-backward today
$VIX cash is just flat to the VIX Sep19 with just a couple of days to go. That in itself is not crazy. There is not doubt that the 1 – 2 punch of $AMZN getting clobbered and the latest super-secret level of tariffs helped push $VIX up from multi-session lows on Friday. This shock move really comes as no surprise with the $QQQ down over 1% today in repose to both pieces of bad news..
Usually any sign of flatness or backwardation is a small bullish sign for $VIX. $SPX has sat at ATHs now for a week or two and really there has not much more catalyst except…. The end of the Trade War! That is where the real volatility lies dormant in the market. Any real lessening of the tariffs will give the market what it wants and that is the potential for a nice lift. On the flip side if the Chinese dig in their heels more the rhetoric and sentiment can only get worse. $VIX lives off of sentiment but the $VIX futures curve lives off of changes in sentiment.
If we are looking for things to buy or sell what would make the most sense? I think we buy volatility and we buy gamma but not exactly how one would think. The market is clearly more hooked on moves in $QQQ then in $SPX. Also the flatter curve in $VIX makes me look at $VXX strangely enough. The flatter $VIX is, the more $VXX tends to move.
So the final question is it is possible to buy gamma, buy options and end up with a net “short volatility” position at some point? In Options Made Easy starting tomorrow night, I am going to talk about the nuance of when to buy, or not buy, options to deliver an express purpose. Right now we are setting up for such a scenario. Lower implied volatility with higher potential moves delivers a potent brew. You just have to know where to look.
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Disclosure: $VIX, $VXX, $QQQ positions
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