Tick tock went the gamma bomb

BY ANDREW GIOVINAZZI

May 28, 2024

Hey OP Crew,

AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…

If some of my Option Volatility Jargon is vexing, our Glossary is here.

Last Week:

“VIX is making lows and likely to continue with a small blip into Nvidia Corp (Ticker: NVDA) earnings. At this point NVDA is the only thing that derails the market next week with the lack of hard news but 5400 will be tough. I have been off by 50 SPX points a week on the upside but NVDA could really propel us higher.

11 VIX for the week sets up the Gamma Bomb another tick or two. Stay tuned for more on that.”

We got an 11 VIX and fail at 5400. So I will call that a win.

NVDA produced some good numbers but the rally died Thursday morning only to recover most by Friday. We did not close at the highs for SPX but we did close near the lows for VIX and the vol products like the Proshares Ultra Short Term VIX Futures ETF (Ticker: UVXY). The surprise was NVDA only gave us a mild blip but really sucked all the life out of the market. As we went into the Memorial Day weekend, what propels stocks higher? I do not have an answer for that but it seems we have hit a temporary top here.

SPX daily price action over the last 30 days

SPX is at all time highs and I am going to keep running with the politics angle taking over here this summer. Besides some geopolitical risk, traders are looking at the election and the closer we get to seeing who is the next POTUS, the market will run on that uncertainty going off the table. Right now it is still early days but it is clear from the run last week that another 1% up will be tough to get. That is as flat of a chart as the market has produced in a month.

SPX sigma (Vol per term average) levels over the last 30 days.

Sigma Vols hit a new low for the year into the 3 day weekend. If there is risk out there, the market is not pricing it outside of a $110 point SPX move over the next 30 days. Remember even two weeks ago, I was seeing $100 point 3 day moves, now the market is pricing $110 for 30 days. To me that means the hope of a rate cut is dead for the short term.

The 10-day realized vol settled 8.51% with the market flat for the most part. Summer trading into an election where Congress is likely to do less than they normally do which is not saying much.

SPX realized volatility snap on May 10 2024

OP VIX Zone Watch

VIX ZONE 1 9-13 we are here

VIX ZONE 2 13.01 TO 17.99 We were here

VIX ZONE 3 18-23.99

VIX ZONE 4 24<

The front end of the curve continued its drop into a normal contango with the curve almost in a normal VIX state for a bull market. Zone 1 is here and it has proved a sticky area to hold this year. We held Zone 1 for the week so the Gamma Bomb indicator ticks up a bit.

Closing VIX curve, May 24 2024

VIX is flat for the week at the lows of the year. VIX will melt like an ice cube on a 40 degree day, slow but steady.

Closing VIX cash and curve, May 17, 2024

Basic Vol 101 on our Option Pit YouTube channel.

VIX 30 day chart with 1 min candles

For 2024, no news is generally bullish with some AI activity in crypto and other names like Dell Computer Inc (Ticker: DELL). We might see a 1% range for SPX this week with a new low in VIX to 11.50. The market is expecting the slowest week in several years so let’s see if it delivers. That should pay well for Weekly Profit Cycles as I am long VIX puts and SPY put spreads near the money.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 13 for 15 for Opens in WPC. So getting paid to own SPY puts in an up market is something anyone can learn to do.

To Your Trading Success,

-AG