Yo Pit Crazies,

Where and why does Volatility move where it moves?  I get that question a lot.  One of my students asked if technical analysis is good for VIX levels.  To be honest I don’t know what tea leaves work with VIX.  You do you,  What I do know is that option prices have iron laws.  Those are set up by supply and demand and how options are priced in the first place.

When I see closing prices like this, VIX is flat on a Monday, and SPX is up 40%, I know they cannot stay like that forever.  VIX and volatility work on gravity.

Unless you are a flat Earther, take a gander at how Vol Gravity works.

VIX is a strip of volatility

Remember VIX is a 30-day volatility measuring all the options with a bid that expires 30 days out.  That means it looks at what is happening now until expiration.  VIX is guessing what actual volatility will be on average for the next 30 days.  A market moving close to close at .40% is only a 7% VIX,  with VIX trading at 16.90.

That is a VIX that cannot hold up so gravity will pull to the realized volatility.

In the short term, the possible government shutdown adds uncertainty and traders will always charge more for uncertainty.  Once the event happens it is no longer uncertain and the bid for volatility will go away.

Technical Analysis looks at past levels on a chart, and Vol Gravity looks for where VIX has to go.  For 30+ years I have relied on the latter and it has served me well.

To your trading success,

AG

P.S. Griff goes live on Wednesday at 7:00 to lay out where rates and markets go from here. Find out his plans to trade it and sign up here.