VIX Workshop

Last week I posted about a developing trendline on spot VIX. After touching it two more times in the last week, it remains intact. A brief dip below the trendline this afternoon failed and VIX rose to close above 11 yet again. The VIX has now been above 10 for 6 consecutive trading days, the longest that's happened since November 21, 2017. The ongoing trend is unmistakable now and started January 4. Currently the trendline sits at about 10.8. Until that level breaks, one should assume that's the lowest VIX is able to go for now. The VIX trend is putting mild upward pressure on VIX futures. Prior to the government shutdown, VIX did spike but futures did not rise nearly the same magnitude. This resulted in futures premiums narrowing a lot last week, and even briefly dipping into discount territory. One way to interpret this action is that futures expected VIX to drop again. Despite a temporary resolution to the government shutdown, VIX did not drop very far.

Volatility is back! A very unusual day developed today as every major index opened at fresh all time highs then retreated after the first half hour. VIX also opened higher in the overnight session and continued rising all morning, peaking at 12.41 this afternoon. S&P Futures initially rose today and peaked by 10am ET. 5min bars. Usually VIX drops when SPX rises, but the first half hour of trading today saw the VIX rise despite SPX reaching new highs. This should ring alarm bells for any volatility trader. What is going on and how do we expect volatility to resolve this? VIX also rose this morning and even dropped with SPX before decoupling. 5min bars. Occasionally we can see a rising VIX together with a rising market as a technical response – traders buying insurance in the form of SPX puts as the market adjusts higher. This can be normal and is usually transient, lasting a few hours to days. VIX can also rise if there are news events triggering volatility. To

In what proved to be a very short lived pullback Monday morning, futures gave back a few points only to rally back to new all time highs. Markets plowed higher again Tuesday and then gave back about 3/4 of Tuesday's gains in the last hour of trading. This is all very normal, constructive trading so far. After being up 5 days in a row, I would expect the market to finally pause here at some point. Realistically, we have been in an extreme one-way market the last week. Tuesday, VIX finally had a close above 10. It might seem like quite a pop from the recent near-record lows but let's not forget too quickly that a VIX of 10.08 is still extremely bullish for the market overall. On top of that, the 9.3% Contango in VIX Futures is so steep that SVXY is naturally experiencing a push higher of $0.82 a day and UVXY is being driven lower by $0.11 a day. That means even if VIX doesn't move much for the next week and stays in the low 10 range, SVXY would end up closing $3.28

​ In a repeat of the previous year, markets surged right out of the gate to start 2018.    Concerns had been mounting that a new year with lower tax rates might initiate some selling in January due to traders sitting on healthy profits from 2017. That hasn’t materialized yet. One has to wonder if there is even a way to quantify the risk of selling into lower tax rates.    Why give up a good thing? 2017 offered very few entries to the market. There is no guarantee that selling now would even allow a trader to get back into their positions before the market runs another 3-5%. And now that lower tax rates are here to stay, what’s the rush in selling? Whether a trader sells now or waits for higher prices later in the year, the tax rates will be the same on the realization of profits.   There may certainly be other triggers to volatility though early in 2018, so they should not be  ignored. In fact the list can be quite lengthy. Here are some of the things on my radar as we be

2017 was the year that volatility died. No other year even comes close to the number of low VIX readings in the 8's and 9's. Records continued to be set in 2017 and each time VIX spiked just a little bit, baseline volatility settled to an even lower level afterward. Even the VIX high for the year was minor by historical standards. During a brief August pullback, VIX hit a high of 17.28. For perspective, there have been some years where the VIX would never have dropped below that level. The index has not been above 20 since the 2016 election.  2017 Weekly VIX Chart. Nothing to see here. Looking at the SPX, the low for the year happened on January 3, the first day of trading. The high happened less than 2 weeks ago on December 18. There's been a very steady march upward all year, broken only briefly by minor pullbacks. Those waiting for lower prices to get in were repeatedly left behind and bears were nowhere to be found. Even the brief August spike in volatility

Did you know you can actually calculate and plot the values for SVXY and UVXY any time of day or night as long as VIX futures are trading? I went through a complicated explanation here so you can do it yourself and understand what goes into the calculations. Once you understand the calculation though, a simple shortcut is to use an index ticker known as SPVIXSTER. This is available on most trading platforms as well as Google and Yahoo quotes. An even nicer trick is that you can create a ThinkorSwim Thinkscript to plot the value you for you overnight! Basically SPVIXSTER is telling you the relative value of the 30-day weighted VIX future. The fund values of UVXY and SVXY are also available in realtime with the ticker UVXY.IV and SVXY.IV (or some variation thereof, depending on your specific broker). Now, although the fund values are not available after the 4:15 close, SPVIXSTER is reported around the clock as long as VIX futures are trading. See where I'm going with this? By