VIX drops to a 30 day low

BY ANDREW GIOVINAZZI

May 4, 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:

“We have a flat market until the Fed on Wednesday, AAPL could surprise with sales growth. That good be the 1 – 2 punch traders need to get to 5200. Implied Volatility is looking for 100 points next week SPX and I think it will get it. Unless AAPL is horrible, expect 5200.”

Well we got several 100 points moves in SPX this week. AAPL was good enough with buybacks to propel stocks higher but only from 5000 SPX to 5125. The volatility was there and stocks got some animal spirits by the end of the week. NFP does suggest a slowdown in hiring so the rate cut idea is, crazy enough, back on the table.

SPX daily price action over the last 30 days

SPX is down 1.5% from the highs but sigma vol ran into 30 day lows. From the volatility point of view, the last month did not happen and we are starting over. There is the hope of rate cuts and looking for more good news in AI. NVDA reports May22 and if they rock will propel SPX higher.

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

Sigma Vols dropped to the low post-FOMC and looking at the chart it was very rocky before that. The reason being that SPX was turning in 100 point 2 day ranges and option volatility responded in kind. By Friday’s close, implied vol was at a 30 day low. Note also from the chart it had a hard time staying there over the last 30 days.

The 10-day realized vol is up to 14.51 from last week just as VIX predicted more movement. Right now with VIX down to 13.51, traders are discounting next week so the market is in a quiet news period dominated this year by Fed announcements. 30 day realized vol is still low at 12.83.

SPX realized volatility snap on May 03 2024

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

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. Once again, dropping into Zone 1 is a real possibility. Contango markets are bearish VIX in general.

Closing VIX curve, Apr 26, 2024

After many VIX curve changes this week, from contango to flat, VIX is now looking for lower numbers for volatility in the short term. This week could be a hard time for long volatility in the weekly’s.

Closing VIX cash and curve, May 03, 2024

Basic Vol 101 on our Option Pit YouTube channel.

VIX 30 day chart with 1 min candles

This is a very light news week. I expect a little pullback in stocks once the news on the AAPL buyback is fully digested. Then rally mode starts again closing on 5150 and VIX trundling down to 13 or lower. The massive contango should way on all vol products so expect UVXY to finish lower on the week by $1.00.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 11 for 12 for Opens in WPC. So getting paid to own SPY puts it in an up market is something anyone can learn to do.

To Your Trading Success,

-AG