For a moment there I thought hell froze over as a bi-partisan plan for the AHCA might keep it running for two more years. Keep buying the insurance companies I guess. Today was such a snooze that I have to go observational. NFLX was not enough to excite although 70% stock price gains this year are exciting enough. Let’s talk VIX because it did something slightly not normal but normal today.
charts from VIXcentral.com
The 3 day rule
No, I did not invent the 3 day rule, but I like it. In the old days a stock that went up 3 days in a row was susceptible to a pullback. The 90’s put the rule on hold and QE messed with it as well. Basically it is the old tape readers logic that 3 days in one direction is not sustainable. With equity prices it is not a bad swing run timing thing, but it works very well for volatility, QE be damned.
It happened! The streak of sub-10 closes is going to end for VIX today and I am not sure why. Yeah we had some weekend effect and the morning rally in tech went kaput, but actual SPX move was pretty light. I think this is the one time in IV where VIX rallied because traders were looking at the upside instead of the downside. Sub-10 VIX is still pushing on a rope with vol expectation to go lower.
So you say, "what does VIX do again"? It stayed below 9 for the 6th day in a row. Mark did a hit on Mad Money describing this. Realized vol is in the toilet so VIX should be low. If VIX was rising solidly on a rising SPX, usually that is a good time close the short vol positions. We did have a slight up day in VIX today, .12, but I don’t think that is enough to reverse the trend. ATM IV in the SPX is 6.68% so it is hard for VIX to get much lower.
For the first time since Weeklys were listed, at least that I can remember, IV is in the 6 handle or lower for all SPX Weekly options out a month. Well the Oct27 is 7.12 but still very low. At the money IV in the Oct02 cycle is 4.99%. Can it get lower?
As we run to all-time highs for SPX and RUT plain kicking the door down, VIX notched in a 9 handle close. All is normal, as the BIG VOL INDEX runs the way it is supposed to. Now the issue really is why the VIX Oct future remains above 12 with less than 3 weeks to go. The short answer is the future traders are holding out. Waiting for the next DJT Tweet bomb or a NK dirt clod fight has left premium sellers a little shell shocked. They won't give it up.