Well we are still in the middle of summer but it didn’t take long for Volatility to reemerge. The VIX moved about +38% Monday alone putting a pretty significant Higher High over the intermediate term in, both in terms of front month futures and the overall index.
The VIX failed right at our Pi line as well (not really a shocker) but that was a great signal and spot to sell Vol as well as a great spot to take any protection in the form of puts off. I had signaled the last several weeks that long Calls on the VIX made a lot of sense you got paid on those trades early this week.
From here, after making a Higher High in Vol, the probability of a Higher Low is much higher now. So I’m looking for the bottom of my intermediate-term range to be closer to 16. Do I think we can see new lows on the VIX like say a 13 handle, no I don’t but we haven’t broken down the overall equity indices yet either as they are still trending long-term bullish - so if S&P does climb to a new high say on just the delta/gamma exposure from dealers that will drag the VIX lower also.
Point being 23/24 VIX you were suppose to be a seller and I will be cover VIX shorts here at 18 to 16 zone. If and when we see those levels VIX calls I’ll start to buy again as well.
Lastly if we do see a material Higher Low on the VIX say in that 16 range that could very likely coincide with another Long-term Lower High on small caps like $RTY and potentially even on the S&P - if that materializes caution on equity longs needs to be had as we could easily see a retest of Mondays VIX levels.
Stay nimble out there and it pays to play the wider levels when trading Vol but I’ll update you on my thoughts into month end on the VIX & SPY.
Cheers,
JJ