Shut the door, VIX is up two days in a row

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.

We are close to earnings so this generally happens.  A slight bid into the great earnings unknown followed by decent earnings and down goes the VIX.  This part of the cycle is touchy since the vol products are moving into the Nov cycle.  Things are about fair there after a .74 move in VIX so those futures were already poised to absorb the rally.

 

LivevolX for Lightspeed

If we get a 3rd day of VIX rally that might be noteworthy, especially if we see the same nothing-burger on the underlying SPX tomorrow.  That means something spooky is afoot 3 weeks before Halloween.

The trade

I like the VIX Oct 18 12 level puts into a 3rd day of VIX rally.  Hedge with call spreads just OTM.  Plan for it to pay with VIX at 10 or much bigger number should a surprise befall us.

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Disclosure: VIX positions in the fund I manage risk for Karman Line Capital, LLC

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