Yo Pit Crazies,
I am a conditional trader and use volatility as a key to create entry points for my trades.
The VIX curve is just another volatility indicator – but a very useful one for judging broad market sentiment.
I use it in many of the services at Option Pit, including the Trading Desk, OP Mentoring and OP Pro.
Understanding what the market thinks before entering a trade … I find that very useful.
Take Monday for instance …
VIX curve with multiple days running in contango
These VIX curves are in Contango. What does that mean for trading and for the week?
Contango Is Sloping Up from Left to Right
Vol Man is helping out above. He is standing at the top of the set of curves last week that represent daily closing prices. Each point on the curve is a different VIX future term. The line connecting the days form the curve that slopes up from left to right.
Vol Man is standing at the highest point of last week’s post-Fed intervention on the purple curve. The Market is currently the blue curve.
The important thing is that all the short term futures are lower, so traders think VIX will be lower in the short term and higher in the long term. This is normal.
The red line is where the VIX curve was prior to Silicon Valley Bank (Ticker: SVB) implosion. It is clear even after some interventions from the Fed we are not back yet. This is a where-we-are and where-we-need-to-be set of historical curves … a map to the banking crisis getting over with from the markets point of view.
All the ViX curves have shifted “UP” since the event and have not come down. While traders are still looking for the market to slow down in terms of volatility, the event is still in the market for vol, which means we are not done yet. Volatile moves from the banking crisis are still with us.
If you want to learn more about using the VIX curve, check out our Trade Desk on Tuesdays and everyday where we walk through the vol curve and look for the best trade we can find based on the conditions we see.
To Your Trading Success,
AG