Up 1%, Down 1%

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

August 25, 2023

Yo Pit Crazies,

After blitzing higher on the big Nvidia Corp (Ticker: NVDA) beat, stocks got a case of the grumpies on interest rates and bank worries and hit the skids for a near 100 point peak to trough turn around for the SPX. I have to say – it’s been since March I recall a 1% up on one day and a 1% down on the next day.

This is the definition of volatility. So close to close, the volatility in the SPX was …16% or thereabouts. Mark took the opportunity to close some SPX Mini Index (Ticker: XSP) puts in the Trading Desk at the end of the day after a nice call close at the end of the day yesterday. I am going to rename him Mark “Strike While the Iron is Hot” Sebastian.

VIX closed 17+. Is anyone scared? Why do we keep buying strangles?

Short Term IV is Still Sub-16

We had a 32% intraday realized vol yesterday and 18% the day before. Yet short term IV’s cannot get above 16 in SPX. That’s why Mark and I have been buying strangles in the bigger index products – implied vol is underpriced.

I don’t know how long it will stay this way, but for now implied vol is cheap and Jackson Hole speeches are still to come. It wouldn’t surprise me if SPX recovered the selloff we had today at some point after the speech if Powell is a little dovish.

Lots of stocks are sitting at year lows. For now, we still like the strangle action in the Trading Desk, but VIX does not look like it will drop anytime soon.