BY ANDREW GIOVINAZZI
February 7, 2024
Yo Pit Crazies,
Did you go on a ride with Palantir Technologies (Ticker: PLTR) on Tuesday? We did in the Easy Trade Button.
After several days of not believing the rally in the Standard and Poor’s 500 Index (Ticker: SPX), the Cboe Volatility Index (Ticker: VIX) closed on a 10 day low.
Heck it almost traded in the 12 handle. Was it all those Fed Governors saying how they are not going to lower rates? Maybe.
Lower volatility is lower volatility and the flatter curve in VIX we have had the last few days usually means
VIX is going to move. And so it did and surprisingly it is down.
In the Trading Desk, we looked at some double calendars in the SPY. I thought the conditions were perfect for that kind of trade.
The CPI number, hitting Tuesday next week, is usually a big market catalyst in the land of the Fed-Only Controlled Market. I thought buying the SPDR S&P 500 Trust (Ticker: SPY) Feb16 cycle was a lock to hold up.
I might have been wrong.
Double Calendars like stable volatility
Note below the volatility per term known as Sigma. We had a mini-collapse in volatility Tuesday which seems like it came out of nowhere. Like traders heard something that makes the CPI inconsequential. The Double Calendar buys call calendars and put calendars at the same time to generate positive time decay The higher the back month volatility stays the better the performance of the Double Calendar.
I thought it was a lock that the Feb16 cycle would hold up and as anyone can see below it did not.
My trade is down around $4 per contract so not too bad.
10.85 volatility is crazy low given the event potential.
It is possible that this week sees a large repricing down of risk since it is clear that some shoes have dropped.
Like the CPI will not be a thing.
That means I can buy more on Friday or Monday next week.
Worst comes to worse i will own the SPY Feb16 488/498 strangle for 2.45.
That plays if SPY makes a run at 500 since it is possible the vol traders are right.
To Your Trading Success,
-AG
Andrew Giovinazzi
30-Year Trading Pro
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CAPITOL GAINS: SMR Aug16 7 call closed for a 150% gain
DELTA STRIKE: VLY Mar15 8 puts closed for a 88% gain
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OPTION SHOPPER: ERX Mar28 65 calls closed for a 90% gain