Why won’t VIX go down?

BY ANDREW GIOVINAZZI

January 23, 2025

Yo Pit Crazies,

If you missed it with me and Hannah, the Option Fingerprint replay is here. A big part of that of course is watching institutional orderflow. They like buying long term options. I was laughing with Hannah this morning that the Hon Nancy Pelosi was buying, of all things, LEAPS in some of the Big Tech stocks. She must have known part of the release on the massive spend going into AI over the next few years.

Institutions buy other options beside LEAPS. They buy and sell short term options en masse and can move market volatility very quickly. Right now SPX made an all time high without a new corresponding low for VIX. VIX traded a two week low but generally bull markets make VIX lows. VIX at 15 is not even close.

Below are the SPX Feb21 options that make up most of the VIX value. The SPX straddle, the call and put, are $159 out to Feb21.

The question on the straddle is if I think it is overpriced or undervalued for the next 30 days. That will inform my VIX estimate and I can bet many institutions are doing the same. The next question is how to price the straddle in a way I can trade it.

What is going on over the next 30 days?

In 10 trading days, SPX is up 300 points

We have some tariffs coming, maybe or maybe not, on Feb.01, the FOMC on the 29th and Big Tech earnings by Feb 05. The Trump Inauguration provided a volatility catalyst but really provided a market up catalyst. If the 30 day straddle is only pricing $150 points, there is institutional buying support on the option prices. It is unlikely that VIX drops too much until early Feb, say around the 10th.

The big question is does SPX keep moving. The next few days should be quiet until more earnings come out and then we will see what the Big Money does with options.

With the upside volatilities still rising, my guess is 6200 before 5900.

If you want a successful program to avoid short term trading, try this.

To Your Trading Success,