BY ANDREW GIOVINAZZI
August 26, 2024
Hey OP Crew,
Check out our latest on Time Decay here.
If some of my Option Volatility Jargon is vexing, our Glossary is here.
AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…
Last Week:
“VIX IV and VIX got smoked. I don’t expect a lot from VIX this week. Maybe a 1 point drop but some “hold” until the Jackson Hole grandee speeches from the pulpit. At some point the Fed Chairman has to address the ridiculous government spending which would be a magic to stocks at this point. As Uncle Milton Friedman, says less regulation and government spending leads to growth, which VP Harris did not get that message before her address.
SPX is too close to 5600 not to tickle it once. I don’t expect JPow to talk about cuts because the markets are functioning well and rates need to stay where they are because, wait for it, insane government spending. SPX earnings were up 10% YOY so while they did not blow the doors off, companies are adjusting just not meeting the crazy AI expectations.”
The Options Insider Radio Networks Vol Views is a little extra volatility insight with Mark or myself every Friday.
Well shut my mouth, VIX did indeed hold all the way through both Jpow minutes and speech. SPX did indeed tickle 5600 and closed above it on a seesaw Thursday/Friday. I will give myself a B+. However Jpow was his most dovish, and no surprise as Frank Gregory would say, with a possible rate cut in Sep. in an election year? Perish the thought. Nothing on USGOV spending as the Harris ticket ramped up spending with a new $1.7 Trillion give away! Apparently no one in Wash DC understands basic economics anymore.
I do see mixed VIX signals so I will get to that below. 5600 is 5600 and as traders we take what we see and the bull is still here. There were some very good earnings out of retail stocks like Target Inc (Ticker: TGT) and home sales staged a rebound on lower rates. Until the USGOV kills the stock market, we are still up and AI darling Nvidia Inc (Ticker: NVDA) reports this week.
Weekly Profit Cycles folks are very happy since I closed the biggest gains of the year.
SPX daily price action over the last 30 days with 1 day candles
SPX Sigma for Sep, Oct and Nov
SPX closed at the highs of the week. Not the intraday high but close. The whole Carry Bomb is gone but the artifact of that is not forgotten. Markets have to digest Jpow comments from Jackson Hole as they acknowledge the labor market is getting softer. Still anecdotally in Maine, I hear more help wanted ads on the radio than ever. I would be interested in class if my folks would let me know what they hear on the radio if the job market is softening or not. This week did have the BTFD feel on downticks.
Sigma Vols got smoked all week but the Nov is staying up and it seems the separation will stay until the election or until the polls really separate. Low sigma vol for SPX are confirming of the rally historically.
SPX realized volatility snap on Aug 23 2024
Realized vol for 10 days is 12.96%. That is a total collapse in market volatility. 30 day Realized still holds the Carry Bomb but for the most part trading is getting back to summer norms quickly. The DNC did not move the volatility needle at all so no real surprises.
VIX Volatility Curves
Closing VIX curve, Aug 16 2024
Closing VIX cash and curve, Aug 23 2024
I know it sounds odd but we have a higher VIX but lower Sigma Vol week over week (WOW). VIX is a sample of all strikes with a bid so the downside is still very much alive in SPX. Taken another way, VIX is now pricing well over realized volatility into late September. That is somewhat counter to the rally in SPX. My sense is the rally was so sharp traders have not been able to reduce prices since demand for upside calls was high into the rally. There is a lack of willing sellers of options for now. The flat Sep curve is still signaling a larger VIX move, up or down.
Basic Vol 101 on our Option Pit YouTube channel
OP VIX Zone Watch
VIX ZONE 1 9-13
VIX ZONE 2 13.01 TO 17.99 We are here
VIX ZONE 3 18-23.99 We touched here
VIX ZONE 4 24<
VIX started in Zone 2, touched Zone 3 for a millisecond but could not hold. This is more reflective of noise but historically a fail into a new zone should press VIX closer to the 10 day realized. 10 day realized for SPX is the mode handle for VIX or 12.96
VIX 30 day chart with 1 min candles,
SIGMAs for Sep, Oct and Nov
VIX IV is still bid. Another contra signal for me. I like to see folks come in and sell it but with a near 16 VIX are not taking the VIX IV down because no one is selling it.
The Big Call
SPX is tied to NVDA this week. There will be more Fed speakers talking down rates but traders are still digesting the possibility of lower rates. While I think that is crazy, time has to pass a bit to see this play out. I would expect lower realized vol in SPX this week to keep the trend and tighter ranges but no new lows in VIX until NVDA earnings come out. Good NVDA earnings should see VIX hover low 14s in VIX. NVDA bad earnings likely a trip to 5500 or lower and VIX to Zone 3 briefly. Basket of mix signals just leaning bullish SPX but not by much.
If you want to learn about decay and how to make it work for you, click here.
Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 23 wins for last 30 opens in WPC. So getting paid to own SPY puts in an up market is something anyone can learn to do.
Let’s Go
Andrew Giovinazzi
30-Year Trading Pro
See what's hot at option pit
CAPITOL GAINS: SMR Aug16 7 call closed for a 150% gain
DELTA STRIKE: VLY Mar15 8 puts closed for a 88% gain
PFE May17 26 calls closed for a 66% win
OP MENTORING: SPY Mar22/19 510 put calendars and 520 calls for 6.4% gain
OPTION SHOPPER: ERX Mar28 65 calls closed for a 90% gain
The VIX future pop was good old supply and demand. Is the VIX call buyer right? Time will tell but my Weekly Profit Cycles strategy does not care because I am always holding market downside protections via VIX calls or SPY puts.
If this market gives you the jitters, take a look at what non-correlated market returns can do for your portfolio.
To Your Trading Success,