This is what geopolitical risk looks like

BY ANDREW GIOVINAZZI

April 5, 2024

Yo Pit Crazies,

Stay tuned for our UVXY preso coming on Apr 09. This is likely the biggest opportunity you will see this year.

I had to put the last 3 months up to show the action in context. Trading is context and patterns. Mark’s preso on the 9th is just knowing patterns. What happened today was an out of category move in what has been an impressive bull market. The S&P 500 Trust ETF (Ticker: SPY) move/candle was the biggest of the year.

That means something is not right. The inflation thing is more known. The last few numbers were hot and anyone buying groceries or filling up their tanks knows what the score is. Housing pricing is easing but inflation is still stubborn for the things most people buy. Today’s Fed speaker did not move the needle.

In my experience, nothing moves the market like Uncle Sam. He is the proverbial bull in the china shop. The reason being, he can do crazy big things without anyone stopping him. I think that crazy big thing is the possibility of NATO taking on Ukraine and turning that North Korea of Europe into a mess no one wants.

SPY 3 month chart with VIX on bottom for 30 day in red and 60 day in yellow

This large candle messed up what was going to be my quarterly hedge for my Pro Students. Everything got nutty and conditions changed so I changed with it.

I put on what I think will be a great trade, but not too great. It has to do with VIX, volatility and the sea change in expectations that could move in the blink of an eye.

Read on to see why.

NATO taking on Ukraine adds massive uncertainty

You remember 2022 and equities down a ton that year? Gold and oil are running again and VIX just closed above 16 for the first time in 6 weeks. VIX was 13.75 this morning when everything was hunky dory. That is $2.25 move in 1 day. Remember that number.

I paid $2 for the VIX Apr17 16 put and 17 call strangle in my Pro Group. Generally when VIX pops and IV goes parabolic, it is either really bad and gets worse or everything goes back to normal quickly. It is rarely anything in between.

This morning the VIX Apr 17 16 puts were 1.95 for just the put. I bought the call and the put for $2.00. For almost 2 weeks of trading. That is why I don’t want the trade to be too great, meaning VIX goes to 30. That means the Ukraine thing is a thing again and that is terrible for all involved. I would be happy with the puts just going back to $2.00 and closing the strangle for $2.25.