VIX update

Posted by: Admin: "The Vol_Trader"  //  Category: Volatility Trades

In my may 5th blog post I commented that the VIX had run up much faster and higher from 27-Apr to 5-May than it did when we had a market correction in Jan-Feb which was actually more severe at that time. 

Well, I spoke too soon about the ‘severe’ part.  If you read that post you saw I was trying to come up with ideas as to why the VIX behaved this way.  Had I put a #5 bullet saying, “tomorrow will be a historic down day”, I would have been a genius (and very rich). 

Conspiracy theorists would say that the GS’s of the world were buying SPX puts the day before the ‘crash’ driving up the IV.  

Moving forward, My 06-May post and 13-May posts both discussed me getting long Vega and short delta.  Boy was I right on both occasions.  06-May was a nice day to be long vega, short delta into the crash.  I took some nice profits then.  13-May turned out to be a great day to get long Vega, short delta in the AM, and it continued Friday, 14-May leading to my best ever two day streak. 

You can see the action in the SPX and VIX here in the LiveVol Pro software.  In the below chart the first candle is 23-Apr-2010.  The recent high is the next day 26-Apr.  The bottom line chart is the 30 day IV. 


You can see the IV went up and stayed pretty high and curved up Friday, the last candle.

Below is the LiveVol Pro chart of the VIX for the same time period:


At the end of the day Friday ,15:45 EST, I decided that I didn’t want to carry my very short delta risk into the weekend.  I sold a lot of (expensive) Jun OEX $510 ATM puts to get less short delta and shorter vega.  Looking at the Thinkorswim SPX chart below, you can see I was not the only one getting less short / long at the close… from 15:30 to 16:00 the SPX rallied  +$9.11 from a low of $1126.57 to close at $1135.68. 


NOTE: Check out the LiveVol Pro software at:   I  just love it so much that I couldn’t trade without it anymore. 

Hopefully next week, I’ll find some time to post some individual equity trades again.  Please stay tuned! Thanks for reading Vol Trader Blog!


Market Rally (in the VIX)

Posted by: Admin: "The Vol_Trader"  //  Category: Misc, Volatility Trades

Instead of my usual commentary on the Volatility of an individual equity, I’m going to make a few statements about market Volatility today. 

Below is the LiveVol Software chart of the VIX year to date. (Click any picture to enlarge)  You can clearly see the run up since 4/27/10 has continued today.  Below the VIX chart is the year to date chart of the SPX.  Interestingly, the SPX correction in Jan – Feb was more severe than the recent correction yet VIX is moving more on this correction. Below the VIX candle chart is the Implied Volatility of the VIX, or the volatility of the volatility. It is clearly higher than back in Jan – Feb.



I was thinking of why the VIX was so much more active in this correction vs. the last one.  I came up with a few ideas and I’d love to hear your feedback on this subject…

  1. Leading up to this correction we’ve had a much steeper and longer run up from the recent 2/5/10 bottom.
  2. Longs had given up on buying index puts for protection that lost month after month and are now scrambling to buy them.
  3. I read a rumor on StockTwits that someone had a very large short VIX futures position that is getting a big short squeeze.
  4. According to my inside sources, many retail customers were very short naked puts, ETF, Index and Equity.  This would cause a panic short squeeze to cover the naked puts.  These puts would have been sold in Mar and Apr when VIX was bottoming.  Selling naked puts at the VIX  bottom is a dangerous thing. 

I’d love to hear your comments here.  Please post comments agreeing or disagreeing with 1-4 above and/or add 5, 6, 7…

Personally, I’m dealing with this VIX run up as I’m short (bearish off-center) strangles in SPY and OEX which is hurting. Luckily I bought some cheap OOM puts that are doing quite well offsetting my very short Vega.  Additionally, when VIX was bottoming I bought some RUT back spreads that I’ve adjusted to be delta neutral and very long Vega which is working well.

Mark Sebastian at  often talks about buying these OTM puts called “units”.  He also talks about hidden delta which in this case is short delta these OTM puts acquire as the market drops and Vega increases.  (Mark correct me if I’ve misquoted you.) I highly recommend reading Mark’s blog posts on this subject.