VIX vol market says hold my beer

Daily Pit Stop [fstp, logo, header] February 18, 2024 [volman, vol man, vol,] VIX vol market says hold my beer Hey OP Crew, AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast… [If some of my Option Volatility Jargon is vexing, our Glossary is here.]( Last Week: “CPI, CPI, CPI I think the market is underpricing the number Tuesday and I will have a special Weekly Profit Cycles event Monday. A flat number sees 5100 SPX. There is some uncertainty around the SCOTUS decision with Trump running for POTUS again. If you dont think Washington DC plays a role in volatility in markets: You have not paid attention the last 10 years You are not looking at the crazy bid for VIX in the election cycle in the VIX futures chart above The good news is that the USA mostly works no matter who is President, which is why the SPX averages 7% a year.’ The idea that the market was underpricing the move was, well, exact. SPX almost traded 5100 on horrendous inflation data and sniffed 4900. That is 150 points for the week and straddles priced 60 points.  I placed a couple of extra RIFFs for Weekly Profit cycles and was able to go 4-1 this week. One of my students told me “Let’s do that again.” I like that because I know my students in WPC are getting the groove of closing wins. Like practicing 3 foot putts in golf. You want to hear them go in the hole. For traders who buy options, closing for dollars is paramount. SPX is up 6.3% for the last 30 days. Just a bit under a 1 year historical average gain of 7%. Tech Earnings have been blockbuster but the inflation picture is muted enough that I believe interest rate drops are off the table for 2024. That can change of course but I believe inflation is linked to government spending and that shows no signs of sanity lately. I believe that is what the volatility is telling us. The left hand is good but the right hand of inflation creates uncertainty.  Markets hate uncertainty and that jumped back in the picture this week. [fstp] SPX daily price action over the last 30 days [fstp] SPX sigma (Vol per term average) levels over the last 30 days. How do I know uncertainty crept back in? Sigma vols, and implied volatility in general was higher than last week after key economic data. That is not a bullish SPX sign. The uni-direction market is allowing the downside to just creep in. 10-day realized vol is 11.17% after the 2 day moves this past week. Realized volatility is still low but in what I would call “normal bull markets” these realized vols are in single digits like 7 or 8%. [fstp] SPX realized volatility snap on Feb VIX cash closed higher bringing downside volatility back in and a move out of Zone 1. A change in the volatility Zone is one of my big 3 volatility signals. VIX ZONE 1 9-13 VIX ZONE 2 13.01 TO 17.99 VIX ZONE 3 18-23.99 VIX ZONE 4 24< Change in Zone Change in Direction Change in Curve We still closed in contango for the week after the spike Tuesday and spent most of the week moving down in VIX until the last 30 min on Friday. A mixed signal for SPX direction. Note that the VIX curve below is closer to the cash of last week and VIX futures were higher. That is higher short term volatility in all SPX terms. [fstp] Closing VIX curve, Feb 16, 2024 [fstp] Closing VIX cash and curve, Feb 09, 2024 VIX spike might have been due to huge 16 and 17 call open interest in the Feb cycle. A spike in VIX does not always portend more to come but on balance it usually does. At least for most of last week, VIX spent the time dropping. [fstp] VIX 30 day chart with 1 min candles The March Rate decision seems dead so from that point of view there is little gas to put on equity fires.  Nvidia Corp (Ticker: NVDA) are coming up early next week and could provide a volatility catalyst. VIX is looking for more to be honest. So far, CPI/PPI combo did overwhelm markets. My guess is the VIX stays elevated to NVDA earnings and then tails off next week. NVDA will be the height of the earnings season then SPX will struggle to regain momentum. I am looking for just a flat SPX week with an outside chance for a VIX shock post-NVDA. Don't forget Monday is a holiday. [Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively.]( Let’s Go - AG  [logo, pit profits] - Capitol Gains - MTC closed APA Feb23/09 call calendars for 23% gain - Option Pit Mentoring - OPM closed VIX Feb14 14.5p/16 strangles for 28% gain Want to find YOUR winning fit? Give our Customer Care Team a call at [1-888-872-3301](tel:/1-888-872-3301) Monday-Friday from 9 a.m. - 5 p.m. EST. Or email them anytime at [support@optionpit.com](mailto:/support@optionpit.com)  [logo, header] Big Week For Bitcoin  Hey Traders This has been a monster week for Bitcoin prices as we move higher with explosive momentum. When looking at ETF flows, we can see that the GBTC outflows have substantially subsided while other ETF providers are seeing stronger and stronger inflows.  [fcry] Together this has brought BTC above $50k, currently around $52k as of this writing. The next big event for BTC is the “halving” where Bitcoin mining rewards drop by 50%. This is a 50% reduction in BTC supply, which is produced with every block (about every 10 minutes). This is supposed to occur in late April. Looking at the June options expiration contract, we can see that implied volatility has shifted significantly higher week-over-week. [fcry] The call wing is also a bit steeper. In terms of realized volatility however the 10-day and 30-day RV is slightly shy of the 50% volatility level. This is about 15pts below the June implied volatility. [fcry]This means the option market is paying a substantial premium for optionality compared to the current environment. We’d need to see a lot more explosive volatility for these levels to be justified. It might just happen. This is what I am seeing in the Bitcoin options and ETFs space at this time. I will be bringing you more crypto levels, data and news absolutely free every week. - Greg  [frep] A War Story From My Floor Trading Days Welcome to a new series from Option Pit….each week one of our traders will bring a ‘war story’ from our days as a floor trader that we think is relevant to the current market. Hey Traders, This week I am going to share a story about how I began trading a specific ETF….Let me set the stage. Every 10 years or so an international market gets hot….the most notable of these was the 2014-2015 period when China was absolutely blowing up. Alibababa and other Chinese names were listed in the United States and saw valuations explode. 2006 was one of those years when international markets were exploding. China was just emerging as a trade. China Mobile was at that time exploding…this was the era of RIMM (now blackberry) and Palm.  China Mobile was the Asian version of those names. The other major player was Brazil. Remember…oil was just starting to enter into a mega trend ... investors and traders took one look at PBR and said ‘look at all of that oil they have in Brazil…look at the other natural resources. Other countries that were making news were Venezuela (Hugo Chavez was only starting to reveal who he was), Korea (samsung), and Taiwan with TSMC and other names becoming a pretty big deal. I was just switching trading firms and was trading in the best buy pit. I was trading names like Best Buy, American Air, Clear Channel Communications.  At the time I had nothing to do with ETFs. In 2006 CBOE introduced that traders on the floor could stream markets into any pit on the floor if they had a seat. Being in a pit gave me access to the open outcry orders…but I could get electronic access to any stock on the floor if I paid for it. I am sitting in my pit, and brokers would come in to trade with me. Then…they would immediately get called away to go trade one of these emerging markets. Finally I pulled aside a broker…his name was John, he was from Philly so he and I would talk about Villanova Basketball and other Philly sports (no I don't like the Eagles or Sixers but I appreciate the fans). I asked him…what is going on in that pit you keep getting called to? He told me ‘Dude…you should see the amount of orders I am starting to get in EEM and EWZ.” EEM is the emerging market ETF. It holds stocks that are from emerging markets…which to this day still includes china. EWZ is the ETF for stocks that are in Brazil…PBR, RIO, VALE. I looked at the volume and I was like ‘WOW where did that come from!” EEM was trading more than just about every other ETF except SPY. EWZ…it was outpacing DIA. I didn't know it yet, because despite being on the floor for about 5 years at the time…I was so buried in just trading I wasn't able to see the big picture. But what I was about to trade was a mini-mega trend. Seeing the volume I called the CBOE help desk and signed myself up to make markets on EEM and EWZ. Over the next 6 months the trading in EEM and EWZ was insane. The highlight of the period was when I was able to trade two separate orders in EEM off of eachother. I sold an EEM strangle and bought calls tied to stock at the exact same time and locked in close to 50,000 dollars. Not to mention the daily volume that was consistently adding 500-1500 dollars to my market making account per day. It was a mini mega trend that lasted about 6 months, but it ended up being one of the top 3 more profitable periods of my trading career. What gives us such a huge advantage at Option Pit is that we are TRADERS FIRST. Yes, we want to make our clients money…but because we are all trading our own dollars… we have a vested interest in producing dollars. This is why we are constantly testing new ideas and developing new ways to make money from emerging trends. Right now, the emerging trend is the Mega Trend from Ultra, Mega, and Large cap stocks. [I broke down everything around this new trend on Thursday… click here to watch the replay.]( - Mark  [fpip] Get in the Zone … Trade Zone Hi Shoppers, If you’ve been around the markets as long as Mark, Andrew and I have been, you have witnessed the Mega Trends, also. You know … the trends that defined the stocks that moved so much. Such as the internet, .com, cell phones, biotech, superconductors, and AI just to name a few. Mark is calling these Mega Trends. And he has just identified the current Mega Trend. Mark has discovered that the Mega Stocks are in a [Mega Trend](. The stocks that the world is loving. Stocks like MSFT, GOOGL, NVDA, and META. You know Mark Sebastian, he will find the most profitable option strategy to fit the current conditions. He did his research and has worked out the proper strategy to take advantage of this Mega Stock Mega Trend. He calls it the [Trade Zone](. Once he perfected his strategy he put it to work with eight trades over six months and guess what … they were ALL winners! Every one of them! From 50% to 230%. Not only can Mark find the best option strategy but he is also a great teacher. As a Trade Zone member you will learn so much on option trading that you yourself will be able to fit the option strategy to the stock conditions. [Watch Mark here explain his Trade Zone.]( Pretty cool, right? [On to the trade idea in Cameco Corporation (Ticker: CCJ).](  - Licia   [glossary, logo] There are plenty of terms in the trading world that need explaining. The Option Pit Glossary is here to help. Today's phrase is:  Double-top - A technical chart pattern where a stock makes a high, retraces for a period of time, and makes another high in the same area. [ftsp] All the Right Options. The Option Pit Team brings more than 150 years of experience to you every day. 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