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VIX trade ideas

Bearish Divergence on S&P Volatility at PCZ of Bearish BatThis Bearish Bat would have me believe that the VIX Bullish Butterfly Rally will come to an end and go back down to atleast the area of $28.50 but i wouldn't be surprised if it went into the lower $20s if this played out. For more context this was formerly a Bullish trade Setup but now it's reached the target and we are looking for a retrace downward again. Check the relatted idea below for further context of the previous trade.
TVC:VIXShort
by RizeSenpai
The Market Storm May Not Be Far AwayIn the past few weeks the VIX seems to have been tamed despite all the uncertainties in the market. We are currently approaching the trendline support spanning from Jan 2018 and we should hopefully see some reaction in this symbol. If the market responds at the trendline support like that of Jan 2020, a break of the triangle (indicated by the green arrow) should see some heavy selling in the overall market. Note: This is not a financial advise. This is my way of sharing my trade ideas with the community. Any decisions you make from this is entirely yours and has nothing to do with me.
TVC:VIXLong
by WaveSavvyTrades
Options Trading / Gaining the Edge & VIX Curve Implications Options Leverage has become increasingly popular over the past decade. In the past 30 months, their popularity has risen significantly relative to the Underlying Instrument. Increasingly so, Options tend to move Prices through the effects of Leverage. This is why we see Stocks Split, it vastly reduces the Price of Entry and increases the Potential for increased participation. As in all Markets, Liquidity plays the most important Function. ________________________________________________________________________________ The Traders Edge is best capitalized through an understanding of the Derivatives/Options Greeks as well as VIX timing (previously discussed and linked below). I will thoroughly explain the relationships and provide direct correlations using Price in each example. Simplicity will become self-evident after All the Variables are explained. Directional Risk Management is the Traders Edge. It provides the Risk/Reward parameters in Options Trading will make you a far better Options Trader. ________________________________________________________________________________ Options are a 1st Tier Derivative, ie. - their value is "derived" from an underlying asset. How this value is derived depends upon a number of factors: 1. The 5 Greeks and their functions - Delta, Gamma, Theta, Vega & Rho. With any Derivative - Dependent and Independent Variables define the Function. Greek Dependent Variable Independent Variable Delta Option price Value of Underlying Asset Gamma Delta Value of Underlying Asset Vega Option Price Volatility Theta Option Price Time to Maturity Rho Option Price Sensitivity to Risk-Free Rates Let's put this into context with simple and concise examples of each. ________________________________________________________________________________ Delta - How much the Options Price will increase or decrease with a $1 move in the Price of the underlying Instrument. By Example: Underlying Price of Instrument = $100 Options Premium = $2 Delta = $0.60 For instance - were the Price to move from $100 to $101 the Price of the Option would increase by 60 Cents to $2.60. Were the Price to decline from $100 to $99 in the underlying instrument, the Price of the Option would decline to $1.40 ($2.00 - $0.60). It is extremely important to understand Implied Delta is to occur at any point in time prior to or upon Expiration. Think of Delta as the Probability of your Options Potential, as well, it is actually the Number of Shares relative to the Options 100 Share implied leverage. An out-of-the-money Call Option with a 0.25 Delta has an estimated 25% probability of being in the money at expiration. A deep-in-the-money call option with a 0.90 Delta has an estimated 90% probability of being in the money at expiration. A Delta of 1 cannot occur as it implies Par with the underlying instrument and provides Zero incentive/profit Potential. This is important as we can observe it would be far more intelligent to purchase the underlying outright. For example, with a Delta of 1, for every $ move higher in the underlying, the option price would rise by $100. As you can see there is no incentive to simply not purchase the underlying instrument, it becomes a zero-sum game. Think of Delta in its simplest form with respect to Leverage. Delta in my example above is $0.60 - you are leveraging 60 Shares as opposed to 100 @ a theoretical Delta of 1. Delta's implied theoretical ranges: Calls - 0 to 1 Puts - 0 to (-1) Actual Range @ the Money 0.50 Delta - therefore a Trader is leveraging 50 shares. Why? Because a Trader does not technically own the shares. Consider it the Options Writers Profit Margin or Vig. The further in the Money on an options chain, the higher the Probability your Option will have less Risk. Of course, there is a premium to Risk/Reward as we move lower and away from the underlying Instrument or Share Price. ________________________________________________________________________________ Gamma - How much Delta change with a $1 move in the underlying Price. Delta and Gamma are both affected by Price movements up or down by $1 increments. Continuing our Example above: Underlying Price of Instrument = $100 Options Premium = $2 Delta = $0.60 Gamma = 0.012 For instance - were the Price to move from $100 to $101 the Price of the Option would increase by 60 Cents to $2.60. The Delta will change as it will include Gamma after the $1 Price increase: Delta 0.60 + 0.012 or - 0.612, the New Delta or $2.612. As the Option price moves towards In the Money, once again - Gamma will increase. It is important to lock down the context, these are Price relationships - Delta and Gamma. ________________________________________________________________________________ Theta - Options Prices decrease as Time passes moving to the Expiration Date aka "Time Decay" There are 2 distinct variables to decay. 1. Intrinsic Value: Simply put a Call option will have Intrinsic Value when the underlying Asset is above the Strike price of the Option. By Example: Underlying Price of Instrument = $100 Option Strike Price = $90 Intrinsic Value of Call Option = $10 ($100 - $90) Intrinsic Values can only range from Zero to a Positive number. For Put Options, the Value is the opposite, or when the underlying Aesst is below the Strike Price of the Option. Underlying Price of Instrument = $100 Option Strike Price = $110 Intrinsic Value of Call Option = $10 ($110 - $100) Intrinsic Value is Directly related to Price and only changes when the underlying Price changes. Time has no impact on an Options Intrinsic Value given there is no change in the price of the Underlying Asset. 2. Extrinsic Value: aka "Time Value" or Options with more time until expiration will have more Extrinsic Value than Options with less time until Expiration for the same underlying Asset for the same Expiration Cycle. ie. OPEX Date. Why? Over time Price ranges have the potential to expand and contract. Expansion leads to Contraction and vice versa. LEAP Options - 365 or more Days to Expiration have immense Extrinsic Value due to the component of time. It is important to note Theta begins its larger declines within 30 to 45 Days of Expiration. Theta goes steeply negative within this timeframe with a very High Probability. "Time" truly is Money - Extrinsically. Less Time, less Extrinsic Value, less Money. Options lose Time Value (Extrinsic) - Theta is expressed as a Negative Number. By Example: Underlying Price of Instrument = $100 Theta = $0.50 Time to Expiration = 10 Days Option Strike Price = $90 ($10 Intrinsic Value) Theta (decay) $0.50 X Time (duration) 10 Days = $5.00 of Extrinsic loss over Time to Expiration (Theta). Projected Theta Burn (decay) implies the Price of the Option will be $95. * This assumes there is No Change in Implied Volatility (More on this later). It is important to note when your Portfolio may show a steady change in Portfolio Theta, this is should not be assumed to be a linear function as Delta or Change is the only Constant. Markets move Higher and Lower with increasing Volatility. Changes can and are significant. ________________________________________________________________________________ Vega - Changes in an Options Value with respect to a 1% Change in Volatility or the Implied Volatility (aka the Widow Maker). Why the Widow Maker? If (IV) Implied Volatility drops significantly while the Underlying Asset's Price remains constant. This is an extreme example, but one that has become increasingly more common since September of 2021. Implied Volatility is the expected change to Price in the Underlying Asset's can change over time. Consider it the Price Range. It is important to remember an Options Price must change for Implied Volatility to change. Simply Put - a change in demand for an Option over time will determine its Implied Volatility. Supply becomes a Factor as Risk (implied volatility changes) - you would not want to assume the Risk of selling Naked Puts in a downtrend. Supply would decrease and Premiums would rise. The overall level of confidence and Fear would dictate demands while Supply would Price Risk. Conversely - and this is the Key, any option with a Higher Extrinsic Value will have higher Implied Volatility. By Example: Underlying Asset 1 Price = $110 Call = $100 IV = .69 Underlying Asset 2 Price = $105 Call = $100 IV = .47 A favorite time for the IV Crush is into Earnings of the Underlying as Volatility drops significantly aka - Buy the Rumor, Sell the News. As well, the timing of VIX Roll to Settle play a very large Role in Vega, as does the term Structure of the VIX Curve. Timing and Positioning in Time are the leys to the proverbial Kingdom in Options Trading. An Options Price changes by its Vega with a corresponding move in the Underlying Price of the Assets, Implied Volatility will rise by 1% By Example: Underlying Price of Instrument = $100 Option Strike Price = $90 Intrinsic Value = $10 Vega = 0.25 Implied Volatility = 60% Option Price $10 + Vega $0.25 = $10.25 Implied Volatily = 60% + 1% = 61% What has the highest exposure to Vega? Options At the Money and those with High Extrinsic Values. Remember, Volatility scales with Time, contraction to expansion. By Example: Implied Volatility is expressed on a 365 Day Basis. $100 Underlying Price Implied Volatility = .25 We can simply calculate the Range for the Underlying Price for the next 30 days: 1 Month Range = $100 x 0.25 x Square Root (30/365) Or $3.45 either side of $100 Or $103.45 to $96.65 or a $6.90 range. Finally - and of extreme importance: The shorter the Duration the more Extremes in Volatility affect Price. A large Decrease or Increase in an Underlying Assets price will have a far more pronounced effect on Options of shorter Duration. Melt ups and Melt Downs can be anticipated for Large moves in Leverage and isn't this what today's Options Trader is seeking.. the answer is yes, absolutely. The Setups require patience and an Edge over the Greeks. ________________________________________________________________________________ Rho - Measures the sensitivity of the option price relative to interest rates. A benchmark Interest Rate increases by 1% - Option Prices will change by Rho's Value as a percentage. Rho is presently within an arrangement unseen in prior Cycles, be it Business or Credit. The Treasury Curve, as well as the Effective Funds Rate, have direct Impacts upon Rho. Underlying's Alpha (Which has lower Volatility and higher Pricing Power) has less sensitivity to Rho - to a point, a point where Rates become too burdensome on the Economy. Underlying Beta (Which has Higher Volatility and Lower Pricing Power) has more sensitivity to Rho as forward Earnings are more steeply discounted to Low Beta or low to high Alpha. Given the tumultuous environment currently, Rho is being turned on its head as this Cycle is quite frankly unlike any in history. it Rhymes, yes, its repeat will be similar to Long Cycle Durations. This primarily due to the expansion of Credit and Default/Liquidity Risks present which are unseen in Human History. In prior expansions, rising yields had a profound effect on Bank's Balance Sheets. That was then, Rho would provide a lift to Delta increasing the Value of an option. The exact opposite is beginning to occur now and will likely stay in trend for some time. The math is exactly the same as above, this is where you, dear trader get to exercise your skills in what you have learned. Reminder: Delta and Gamma are Price Calculated in $1 Increments. Theta, Vega, and Rho are Percentage Calculated in 1% Increments. ________________________________________________________________________________ This week will be particularly challenging given the sheer size of this Expiration @ Quad Witching in Septenber 16th. With CPI due Wednesday and the FOMC the following week. It's going to be Volatile in the extreme. I hope this helped you in gaining an Edge with respect to trading Options. Trade Safely, with the Edge, and Good Luck this Week. - HK Please remember the VIX roll to Settle Strategies I discussed here -
TVC:VIX
by HK_L61
5
So Long and Thanks for all the FishI wasn’t able to do much charting and analysis this week. I'm taking a step back from charting the next few weeks as I finish a project. I wanted to get this last chart out that I have been working on for historical look at the vix. Why is the VIX so important? I would argue that the VIX is the most important indicator in a speculators arsenal. The vix is important because after a volatility event the vix will do what it does. Revert to Mean. To see this phenomenon in action all you have to do is a regression trend of VIX from ~2003 to pre-march 2020 to find the mean for VIX is 15.39 Next add another regression trend line sine the Covid 19 Spike and you will see that it took Oct 25 for the VIX event mean return to historical mean. So a speculator like me can conclude that the Crash of 2020 has completed its mean reversion. What was the cost you ask? To determine that, just extend the regression trend to now to find the current mean and WHAT THE HELL! A trend line formed from the completion of the mean reversion for covid to today and we see that the VIX Mean overall has now risin to 19.70. This is huge as a speculator because it gives us a variable to use in our analysis and some assumptions we can make to predicting a trend after an event. 1. When a crisis occurs, the government will step in to correct it with QE in some form. 2. After a large volatility event or even a bear market selloff, we can estimate an amount and time to reversion. Everyone has questioned why the Fed kept the peddle to the QE meddle. Well now you know why, to give the markets time to revert to mean. The bigger the spike, the more QE and/or time it will take to revert to mean. OK Then. Can the VIX predict a crash? I think it can and already is pointing to a near term event. If you compare the 08 GFC you will see 1 important trend of VIX since Jan 07 is a steady increase in volatility until the market eventually crashed. Unlike the March 2020 event which was spontaneous pop in VIX. Now you see, since mean reversion completed in Oct 25th, a steady increase in overall market volatility has taken hold. While the market still mean reverts after a bear leg selloff, that overall mean continues to rise. So How long before it pops? While 07-08 rise in volatility prior to its crash gives us some indication an event is imminent, it won’t be the same. I suspect it will be sooner and larger than anyone expects. If you look at 07-08s incline, It indicates we are knocking at the doorstep. It’s why I think VXX stopped issuing in March. It’s why we get such crazy market rallies in the middle of a “recession” and inverted yields. Everyone knows there is something wrong, the FED is waving their arms in the air like they just don't care. OK smart ass, then why won’t the markets crash. It’s because capital markets of today are much more reflexive than they were in the past. Since 2018, options began increasing in volume and popularity. Now, the dealers that sell those options, aka house the risk (or lack of risk) need to dynamically hedge their delta. When 1 dealer is offside from dealer 2, you can expect they will continuously hedge back and forth until…. They reach mean. This isn’t an overnight process and takes about 21 days in my estimation and is the VANNA and CHARM effects so prevalent in the markets over the past 2 years. It’s why there were such predicable dips every 19th during 2021. It’s why we got a huge bear rally this summer. (Volatility Compression). It’s why every golden cross has a death cross. It’s why moving averages provide hints to direction. OK, OK. This makes sense. But Why? Massive amounts of Delta hedging. I broke down one of the largest hedges wrapped around todays market equities and mapped out the strategies Delta graph. Delta is simple to understand and once you can visualize negative and positive delta you can extrapolate the zones of volatility. Once you map those zones to changes in volatility you have a good base to start marking assumptions. VIX Log Returns moving average. In the bottom panel I created a log return moving average that can give you a magnitude of movements. Ranked from 0-10 in increased volatility you can see that covid 19 moved the volatility scale the most in history with a 9.0 in the VIXTER SCALE. This scale can also move negative to -5 For each spike high there is always an equal push negative to bring volatility back to mean. With all this knowledge we can form a picture in our mind of a trampoline. The tension (or reflexivity) in the trampoline are the dealers pulling liquidity to their side. This includes all the hedge funds, market makers, bulls, bears, prop traders, theta gang, tsla gang, retail, institutions, etc are all pulling the trampoline tighter to their side. Each economical decision or crisis is going to launch VIX that much higher. That is until the trampoline breaks under the pressure. The FED saved banks and corporations after Covid with Stimulus, not the checks you got in the mail (those take time to trickle down to corporations), but the debt they were buying and adding to their balance sheet. That is a massive 9 Trillion dollars. That gave our trampoline the added support it needed to recover. What happens now when the FED puts that 9 Trillion in assets back into the market. The tension grows until the next crisis or event launches it to 10. Then it's... So long and thanks for all the Fish.
TVC:VIXLong
by SPYvsGME
7