VolatilityAnalytics.com

  • About the Volatility Analytics Newsletter
  • Contact
  • VIX 101

VIX Rises to Four Month High – VXX Now Rolling Positively as Backwardation Steepens

Posted by Scott Murray on October 7, 2013
Posted in: Uncategorized. Tagged: VIX, VXX.

These are the times you should look forward to. People are starting to spend serious money on out of the money puts and pumping up the VIX. The low delta puts are catching a strong bid, and this is what gets the VIX surging. It has been a while since we’ve seen this, and it could go much higher. First, let’s look at the VIX weekly chart to get some perspective:

vix107

Realistically, we are not that high, in fact we are about average for an October VIX. Looking at past mini-crises in recent years, the VIX has been much higher. The last debt ceiling debacle saw a VIX of nearly 50. As recently as last December it was 23. So 19 is not that high, and this chart demonstrates that.

We have not had a real correction for over two years, so there are a lot of folks out there that have had nothing to fear for a long time. Add to that the consensus opinion that the government will come to a deal on Oct. 17th, and you have a recipe for a surprise. I’m not expecting a cataclysmic event either, but you must keep in mind what could go wrong.

This demonstrates how heavily bid the OTM puts were. Look at the low deltas as a percentage of put purchases on the SPY:

spyvol107

When the spot VIX and futures are in backwardation, the curve inverts and it is a cause to be wary. If you are short VIX futures for Oct, you should be sweating because the Oct future will get closer to spot as we approach the 15th, and that could be the height of concern:

vixterm107

Courtesy: Vixcentral.com

This structure means that the VXX and UVXY are adding value as they roll into November, by purchasing cheaper futures (NOV) and selling more expensive ones (OCT). This is positive roll and for the VXX and UVXY it is rare. But this situation can certainly imply more equity market pain.

I’m getting itchy to sell vol, but it is not the time, because we are nowhere near a resolution, and a lot of index charts are implying more downside. The S&P broke the 50 SMA today, and the Russell 2k just gave a MACD cross lower sell signal. I’m literally sitting on my hands right here, but should there be a break in the logjam (doubtful this week, IMO), then I will be ready to act.

 

Posts navigation

← VIX Almost Touches 19 Intraday – Huge VIX Trade Setting Up
Volatility is Alive, Even if the VIX is Dead for Now →
  • Subscribe to the VA Newsletter – $30/mo

  • Follow us on Twitter

    Follow @VolatilityWiz
  • RSS Volatility Analytics RSS Feed

    • Volatility Analytics Newsletter Samples
  • Recent Posts

    • Volatility Analytics Newsletter Samples
    • Summer Volatility – Will it Vanish?
    • Creative Volatility Trading (Part 1) – Calendar Ratio Spreads
    • Trading Volatility in a Low Vol Market
    • How Much Short-Term Downside is Left in VXX and UVXY?
  • Archives

    • May 2021
    • May 2018
    • May 2017
    • April 2017
    • November 2015
    • August 2014
    • May 2014
    • March 2014
    • November 2013
    • October 2013
    • September 2013
    • August 2013
    • July 2013
    • June 2013
    • May 2013
    • April 2013
    • March 2013
    • February 2013
    • January 2013
    • December 2012
    • November 2012
  • RSS VIX and More Blog

    • The Latest on VXX and Additional Creation Unit Suspensions by Barclays
    • SPX Weekly Options Will Soon Be Available with Expirations Every Day of the Week
    • UVXY Dominates VIX ETPs By Dollar-Weighted Volume
  • Categories

    • Uncategorized
Proudly powered by WordPress Theme: Parament by Automattic.