I love these VIX Tweets with the big headlines, “Vol can’t get any lower.” I paraphrase the great Warren Buffett and say “VIX can probably stay lower longer that you call afford to keep buying VIX call spreads.” Everyone who writes for financial blogs wants to call the bottom in VIX. I can see it now, “I called the bottom so I know what I am talking about.” What really matters is what type of position we attach to the market call and what kind of position has “edge”. To be successful it is a combination of both. We find ourselves in what I call is a “hanging future”
For a few moments today VIX went backward and traders decided to worry about a tax plan, ECB rate hikes, FANG earnings and whatever else ails a screaming stock market all at once. I don’t see many backward to VIX cash markets at 13 VIX but we had one today. Usually VIX traders have a reason to let VIX cash fly.
Any down day in a week for the SPX that does not see many is significant for VIX. Not that VIX moves a ton yet but for what it sets up going forward. For VIX traders VIX should go up when SPX drops but this is really not a big move on a percentage basis for SPX. After all, the move was less than .50% for SPX but a full 1 point pop in VIX. Even in low vol the VIX cash moved seem a bit rosey.
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.