VIX keeps winding up

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

October 8, 2024

Yo Pit Crazies,

It is always good to learn how to do new things. I have been trading options for 35 years, half of that time as an exchange member and a bit less than that as a teacher and Director of Education at OptionPit.com. During my first 17 years in the option business these things did not explicitly exist:

Weekly Options

Daily Options

The VIX

The VIX futures

Volatility Products like the Volatility Shares -1x VIX short term ETF (Ticker: SVIX) and Barclays Ishares Series B VIX short term futures ETN (Ticker: VXX)

I learned how to trade all those products just using the skills I had before. I am still learning. The good thing about learning how to trade options is that the basics are additive. The old stuff does not get tossed aside because there is new stuff.

A simple example is we had Weekly Options once a month when the option cycle only has a week to go. We did not have the plethora of terms we have now so all the new types of spreads are just a variation of the old theme.

While I expected VIX to be in the 15s last week before I left for Austin, TX, I underestimated how much of a bid the Nov SPX IV around and past the election would get. I got the 15 handle but VIX Oct futures took off because they are controlled by the Nov SPX implied volatility. That I knew but like I said, underestimated the bid for Nov IV.

So a student of mine asked a question today, “If we suspect VIX drops post election, shouldn’t we be buying VXX and Proshares Ultra Short Term VIX futures ETF (Ticker: UVXY) puts now?”

I did have an answer for that.

Once VIX gets backward, the Vol Products decay upward

The problem for a product like VXX is that if VIX really skys above 35 or so, VXX can go up $25. Any VXX put I buy will get eviscerated. Even a December put will go down to pennies. It is hard to watch a put go from $3.00 to .05.

Backwardation is when the VIX cash index trades above the futures. That is how we closed on Monday. To paraphrase WB, VIX can stay backward longer than your puts can keep a value.

To be honest, VIX is way higher than I thought possible given how little the market has moved recently yet there it is. Maybe the market really does want to move before the election. At least that is what VIX is saying. I will hold off buying those Dec VXX puts a little longer.

This is a good place to keep learning. I am never too old to learn new tricks.

To Your Trading Success,,