VIX or SPX Vol: Which One to Trade?

Yo Pit Crazies,


It’s an age old question of what do I trade?


The Cboe Volatility Index (VIX)


Or …


The Standard and Poor’s 500 (SPX) implied volatility?


Read on and the mystery will reveal itself …


The Secret to Trading the VIX Is …


Not how much it will go up — but how much it can go down.


The prevailing trade in VIX is how much can it drop and the prevailing hedge is how much can it go up.


If you want to trade VIX, estimate how much it can go down.


The Secret to Trading SPX Implied Volatility …


Not how much it will go up — but how much it can go down.


Now wait just a minute, you say, that’s the same stuff you said right above.


But it’s true!


The most reliable vol trade is a reversion trade, meaning you jump on a drop in implied vol.


I mentioned yesterday that the SPX upside fly was the trade.


Why?


Because the VIX futures have been non-responsive. There is not enough action from a higher VIX to get them to move and they have become an uninteresting trade.


But SPX IV in the shorter term expiries become a very interesting trade because of accelerated decay. This happens when options decay faster than the model predicts.


Over the Thanksgiving holiday I will spill the beans on the most secret option trade there is and how to make the option market do what you want.


Stay tuned!


The Rundown


The Rundown is taking the rest of the week off. But, as I said, Option Pit Exclusive will be around with some tasty content in the coming days.


To Your Trading Success,

AG

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