VIX cannot get to 12%

Check out our Saturday Class here and learn how to trade VIX There is a free 30 min webinar of a sample of our twice weekly Gold Class.

VIX cannot get to 12%.  The question we want to know is why.  The biggest problem is that the stock market keeps moving too much.  Since VIX is a measure of 30 day volatility, an inkling of future volatility is enough to jack up prices in the back weeks.  Apr18 2825’s were priced just under 11% into the weekend, and ticked to 12.27 today after the reset.  IV is just flat with SPX up quite a bit today.

Note the IV’s from Friday to Today – Charts from LIVEVOL

Long term expectations need to change

Some factors are in play today to make the bullish case; strong Chinese numbers, interest rates reflecting growth today and the eternal hope of earnings to come.  That makes a VIX trade difficult right now since moving down with VIX is much harder that moving up.  In our Saturday Class we will discuss how volatility moves in different ”Zones” .  Mark Longo kids me on The Options Insider Radio’s Option Block because the Zones are not catchy enough titles as in Zone 1, 2 ,3 and  4.  Right now VIX is at the bottom of Zone 2 and it has not been able to break through and stay in Zone 1 since September.

Zone 1 for VIX is a big deal

SPX tends to rally in Zone 1.  Stocks start moving higher and the IV drops away as willing sellers come in and start pounding away at the premium.  VIX becomes very interesting as an intrinsic value play since one can ride the melt lower for very little theta.  The VIX futures keep their premium and everything goes into slow motion.  Right now we are close to that spot with most of the back month VIX futures showing very little premium relative to historic averages.

If you want to learn the INTRINSIC VALUE trade for free see our Gold Class video-  Check out our Saturday Class here and learn how to trade VIX

The Trade

In the money VIX puts could work in the short term.  Use the cheap longer term VIX options to hedge.

Disclosure:  SPX, VIX positions

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