The Flat VIX curve is the worst indicator
The worst VIX Indicator is a flat curve. What is a flat VIX futures curve? That is when the V1 future is < $1 from the V8 future way back in the out month. Also VIX cash hovers around V1 like a dog looking for a bone. I saw this flat curve at 930 et with one of my students this morning and it was a picture of ugly.
What does the worst VIX Indicator signal?
The big signal is that VIX is about to move hard, especially relative to the front month future. Notice below that the VIX Oct future was hovering just below the cash. Usually the Vol Trader does not make something below fair so they were signaling a lower VIX at some point during the Oct cycle. As it turns out today we had a fair move down for VIX that and move happened earlier than normal.
Think of a rubber band stretching on a flat curve
The flatter the VIX curve the more likely it is to move. I don’t know where, thus “The Worst VIX indicator” but we are not staying at a 20 VIX for long. My student and I used our Edge Hunter Backward Sheet VP2 to come with a “Rubber Band” trade. It is essentially long VIX calls and long SPY in some fashion. The trick is to price the parts outright for a nice risk reward ratio. I think we did that.
Disclosure: VIX, SPY positions
Follow Andrew@optionvol You can hear Andrew on Option Block every week.
Follow Mark@optionpit You can hear Mark on Volatility Views every week. Volatility View’s Crystal Ball is on Friday’s.