VIX Completes Check List on Open, Signaling Top
Have I been on fire or what? My last couple of blogs have been dead on (if you haven't read them you should). Traders, while the VIX may have finished near the high of the day, the expectation is that it will not stay there. Take a look at the price action of VIX cash and the VIX futures:
On the open, the VIX futures were actually up quite a bit, August backwardated over September and so on. By day’s end though, all of this has changed. Even so, I think we saw all 3 points of my topping out checklist completed
1. Big up day in VIX: CHECK, we were up about 3 points on Wednesday
2. Big intraday range: CHECK, we had a wide range yesterday (although it was unusual in that IV went from offered to bid as opposed to the other way around).
3. VIX Backwardated over front two months, and front month futures backwardated as well: CHECK happened on the open today.
I think this signals a top in IV. While there is clearly fear in the market, I do not see it being perceived as 'end of the world' fear anymore. On the open I do not think that was the case. This is why VIX was up moderately, but VXX was down.
Hopefully, you traders set up your positions today, on Monday; I think the best trade is likely to be selling put spreads early (assuming a bill passes...something I expect). I think the best sales are going to be front month or the short weeklies. A short time spread might not be such a terrible idea either. VIX IV is through the roof:
Traders may also have a chance to unload that early and often on Monday. Have a great weekend.
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Graphs from CBOE.com
