VIX Says It Ain’t Over

Andrew Giovinazzi

Yo Pit Crazies,

Banking is in a very weird spot these days.

And while there’s a lot to it – there is one thing I’m crystal clear about: securities risk.

All I’ve heard since 2009 is “stress test” and that the banks pass.

Now in 2023 I have to wonder what they are testing.

What I do know is I can read the market’s reaction to it.

In fact, it’s a skill I teach in OP Mentoring: Learn to measure how the market reacts and trade accordingly.

Right now there is a separation in market reaction. The flight to quality is really going into one or two places.

VIX on the other hand ended the week on a bid. That means traders were buying options into the close expecting a move in SPX.

Five-day VIX chart with one-minute candles with the mystery doors 3 and 4

Let’s see what Monday brings.

VIX Moved Zone 4 and Zone 3 All Week

The Zone review is as follows:

Zone 1 9-12 The future so bright I have to wear shades

Zone 2 13-17 There is a dustup, nothing big

Zone 3 18-23 Tomorrow is a worry

Zone 4 24 and above Danger Zone

Each represents a sentiment in the market driven by investor demand for options. It is the single best thing to watch I have found in 30 years of trading.

I use it extensively in the Pro and OP Mentoring at Option Pit – and just about everywhere else for that matter.

Looking at the chart below with fresh eyes one can see how fast sentiment changed. From near-panic to just worry in one trading session. That means to me this extraordinary action by the Fed is there to help a bigger problem.

Five-day VIX Chart with one-day candles

Also we have a Fed rate meeting on Wednesday. Bill Griffo has banged the drum that the Fed will have to pivot to QE at some point when they break something. The Fed just did a massive QE push through their lending action without actually declaring it.

QQQ 10 day chart with 1 day candles

I think that is why the Invesco QQQ Trust (Ticker: QQQ) went into rocketship mode last week. A savvy trader figured the tightening cycle has stopped in the short term and Big Tech growth is all gun blazing.

I think a decent trade would be long QQQ long VIX now. If the Fed holds rates on Wednesday, QQQ will be up another 10 by the end of the month.

The Rundown: What’s Winning at Option PIt

Another great week for OP closes in a very volatile market

Big Money Flow

US Global Jets ETF (Ticker: JETS) Mar31 19.5 puts closed for 14% gain.

Win the Week

iShares iBoxx High Yield Corp Bond ETF (Ticker: HYG) Mar17 74/73 put vertical spread closed at a 48% gain.

Power Income Trader

SPX Mar16 3945/3950 call vertical spread closed for 78% gain return on credit.

Easy Button

Apple Inc (Ticker: AAPL) Mar24 147/160 strangle closed for a 39% gain.

Nitro Trader