Trade Update Nov 16th, 2012 at 10:45am: With only 3 trading days left until expiry of my VIX call spread, and the holiday week ahead of us, I’m going to take off my trade for a loss. The market did go about 3% lower from my initial entry, but bizarrely, there was very little panic on this move. I’ll be watching how VIX behaves on the next bounce in SPX for a better long VIX structure.
Action: Sold to close the VIX (18.20) Nov 20 / 25 call spread at $0.25 for a $0.55 loss
-Sold 1 VIX 20 call at 0.30
-Bought 1 VIX 25 call for 0.05
Original Trade Nov 8th, 2012: New Trade VIX – Vol Too Low
After yesterday’s 2% down move, what surprised me the most was to see VIX at 19 by the close. And this morning, with just a whiff of a rally, VIX spot has moved back towards 18. I understand that the event calendar seems light with the elections and earnings out of the way. And we are approaching Thanksgiving in 2 weeks.
But realized volatility is picking up. My experience has taught me that what matters most for implied volatility is recent realized volatility. Simple as that. As I wrote in my VIX Futures Snapshot yesterday, VIX futures look 1-2 points too low based on recent realized.
This has become a macro market, and we’ve started to trade more macro as a result. Dan traded SPY options on Tuesday and Wednesday, and I’m going to buy a VIX call spread today to take advantage of VIX cheapness:
New Trade: VIX (18.60) Bought Nov 20 / 25 call spread for 0.80
-Bought Nov 20 call for 1.10
-Sold Nov 25 call at 0.30
Break-Even on Nov21st expiration 20.80
-I will take this off quickly on any move above 20 in VIX