The VIX got hammered today and the SPX is now trading at a higher level than it was before the S&P downgrade. So...all is well...maybe, there are a few things I like:
1. The August Futures are now trading at a premium to VIX cash. Yes, there is only a day left until they expire, but for immediate fear to fall even below fear tomorrow is important.
2. VIX IV is finally below the peak of Japan levels. While it is still really expensive to buy VIX insurance and skew is still elevated, things have fallen to levels where at least one could make an argument for owning VIX options
However, there are things I don't like as well
1. SPX IV is still really high, and back month put skew is elevated. It is really expensive to own puts; this is great for the premium seller, awful for those looking to hedge.
2. VIX term structure is still in backwardation and VIX is trading at a HUGE premium to September VIX futures. This implied that immediate fear is still high relative to even 30 days to expiration.
3. I'd like to see Gold and Bonds sell off. Until the 'fear products' calm down, I will not calm down. I would also like to see bond and gold volatility (the GVZ) calm down.
Trades I like:
I think Iron Condors look okay now, IV is high but not insane, and the trader has plenty of chance to collect volatility. For those that want to get long volatility, VXX is going to be a great trade for about 1 day and is a decent volatility play and until futures roll into contango this product will OUTPERFOM September VIX futures. I personally think there is one more pop in VIX but not sure when. VXX is expensive here, XIV is cheap that doesn’t mean one should necessarily short one or buy the other.
The other trade I like is selling the euro on these overactive pops. The Euro was up .02 against the dollar today...I am sorry but it's not worth that much. I would short it.
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Graphs from: CBOE and LiveVolPro
