Why do you want to trade the Volatility Products?

BY ANDREW GIOVINAZZI

January 7, 2024

Yo Pit Crazies,

If I think about it, Trudeau resigning was a Special Situation. That news sent Canadian equities flying and a stock like Cameco Corp (Ticker: CCJ) of Canadian Nuclear Power fame to jump 5% and give Licia Leslie’s Option Shopper another triple digit win. A Special Situation is any thing that happens outside of the normal assumptions of the Black Scholes Option Model. These could be:

Volatility Events

Stock Splits

Earnings

Hard to Borrow Situations

Corporate Actions like a takeover or dividend change

Anti-Lognormal underlying movement

What this can do is accelerate or decelerate normal option performance. For example stocks are assumed to go up every year in the Black Scholes model. Did you know that?

Once I understand how things work, it is easier to price a trade in a product. I circled the two important factors in pricing a volatility product like the 2x VIX futures ETF (Ticker: UVIX).

That should lead you to the easiest trade of the year so click here.

UVIX sells the near term VIX future and buys the next term VIX future

By the time the UVIX split rolls around we should be well into the Feb future. I know it is hard to talk about February already but that is the nature of trading options. Looking into the near future to see what the trading gods have in store for us is part of the game.

Right now the VIX Feb future is 54.55% of the UVIX value and that will grow to a larger percentage over the next two weeks. It will be around 75% on January 15th. That means UVIX will be mostly owning the VIX Feb future when it reverse splits at a level close to Zone 3. That is a long way down potentially for the VIX Feb future to move.

The UVIX reverse split is happening soon and will provide another great opportunity in the long Special Situation history. Stay tuned for the easiest trade of the year.

To Your Trading Success,