VIX has a hard deck

BY ANDREW GIOVINAZZI

December 01, 2023

Yo Pit Crazies,

Mark made more money in his GM calls following the smart money than GM did all year. That is an exaggeration but 240% is not bad overnight for some calls. Go hit some Delta Strike.

The VIX has a hard-deck. Knowing what that hard-deck is will make you a better trader. It made me a better trader.

VIX is the Cboe Volatility Index and it is trading at lows of the year. I can remember trading a market like this as a Cboe or Pcoast member every holiday and things would slow way down. PMs were more interested in holding onto their years than trying something new, Implied volatilities going to lows was the norm, not the exception.

The VIX, as Maverick well knows, has a limit to how far it can go down.

I bet you want to know what that is.

The secret to trading VIX is not how high it can go, but how low it can go.

That might sound counterintuitive but hear me out. VIX can blow up on any adverse news that hits the market. 20, 25, 30 who the heck knows. I remember it jumping to 30 from 0 when someone with Ebola was going to fly to the USA. Most of the money in VIX, month to month is made by owning puts. My Weekly Income Cycles trade is made out of that. A big chunk of the money this year in the Trading Desk was made on the short vol trade.

The number I like to use for the bottom of VIX is the 90 day realized vol in SPX. That gives me an average of the last 90 trading days or about ¼ of the year. That is also a good indicator for how realized vol is moving. Note at the beginning of 2023 realized vol was off the charts. The last 3 months not so much. The market has changed phases.