Volatility is Starting to Sag

Two days in a row of small moves is enough to give the most die hard juice buyer indigestion.  The volatility of VXX options is now sub-50, 30 days out.  For VXX, peaking around $46 a few days ago, the vol ETP is sliding toward $40.  A level it has not been able to stay below since January, before the emerging markets crisis.  Do you remember that?

The simple fact is that it is hard for volatility to get too low.  But how low it can go is always delicious speculation for a juice buyer like me.  Will VIX hit 12 or 11, only the shadow knows?  What there is a lot of is healthy premium in the VIX futures in both May and Jun.

The May cycle is an extra week for VIX and with the future premium trading 2.1 over parity that is already priced in.  We need a couple more days like this for things to really implode.

LivevolX (r) www.livevol.com

Most of the current crises are receding.  That just leaves earnings, and those are already turning into the not so good/not so bad earnings seasons of old.  With lack of catalyst on the horizon, we should see lower levels for VXX.


The Trade

Time put spreads just OTM or 1 x 2 Weekly put spreads just OTM for even or credits in VXX.  A little short direction is ok in Vol products right now but don’t get crazy.  Andrew @optionvol