VIX rallies but near term Implied Volatility is flat


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A VIX move always matters


A VIX move up is always significant.  The why, how and how much are the questions that everyone always asks?  Most volatility trading is an exercise in math and risk control.  Is the edge on your side to create a trade?  Is the volatility there to contract in order to make the big bucks on a vol sale?  The key is knowing if the volatility has expanded in the first place.

The relative move really matters


The VIX  move today was up to around 15% but then sold off into the close.  You would think with the downdraft we had that the vol pop would be sustained.  What I do to look at index volatility is to check if IV is actually moving at the strike.  Is the move in SPX, or any index, enough to move the volatility needle for the expected hold time?  If IV REALLY moves up, then the potential for it to drop is even better.

Chart from Cboe Livevol Pro

VIX moves but gamma sensitive vol does not


The SPX dropped midday only to rally up into the close.  VIX is designed to move when SPX moves. Did you know that VIX is designed to rally with just the SPX dropping?  There is a move built into VIX even if some IV’s are not moving at all.  Take a look at the SPX Mar01 2750 puts.  Granted this strike is not in the VIX calculation but it is instructive on how IV can not move.  On the 20th, the SPX Mar01 2750 was 12.91 and on the close of the 21st, the same series was 12.92.  That is a whopping 1 basis point in IV movement.  Even in a gamma sensitive option like the Mar01 cycle, the market could not lift the IV on the 2750 by the end of the day.

Implied volatility can be sticky


In a sense, the IV “stuck” on the strike as the realized vol could not move the needle.  For this reason I like owning VXXB puts in a 1 month time frame.  This is a way to sell IV into declining volatility and a cheap SPY put would be a fine hedge.


Disclosure: VXXB, SPX positions

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