VIX Roll-Over: Sigma Channels, Sentiment Readings & Order Flow Color

Chart 1: VIX Sigma Channels Chart


Worth noting is that VIX hit +3 sigma on Thursday before last in post-Brexit trading, creating the second spike in volatility for CY 2016.  While June lows of SPX are expected to be tested, the timing ideally should be a bit further out in late July, with spot VIX targeting 24 to 27 range, as this retest in volatility comes in about 4-5 weeks apart.

Chart2: VIX Futures 3-mo. Spread Indicator



This 3-mo spread is favorite of big money managers and institutions.  Based on recent history of current chart, SPX is currently overbought.  That said, we should expect a pull back in SPX and a rise in VIX Futures when this spread tightens and approaches zero.  Once this criteria  has been met, then conditions are favorable for a long entry on SPX. (see our July 23rd 2015 post on this blog for details).

Chart 3: VIX Dollar –weighted Put Call Ratios


Notice the big players have begun rolling out from JULs (expires Wednesday am, LTD is Tuesday) to AUGs already.  How do we see that? From Dollar-weighed Volume of Premiums paid while Contracts-only still shows a ton of small acitivities in JULs.  Expereince tells us to look to AUGs for sentiment readings which is 0.295  (less than 0.3 is bullish for VIX and bearish for Equities).  Also if you look Spot vs VIX Futures, you can see the backwardation which also signals market is priced normally with higher VIX readings in further out months.  At market lows, we should see the inverse (Contango) with Spot VIX at a huge premium to VIX Futures (Term Structure).

Chart 4 Minute by Minute Chart of Dollar-weighted VIX Put/Call (JULY vs AUGUST) today


The roll-out is in full swing in July, you can see that in shape of red curve.  Normally Front Month VIX leads SPX Futures minute by minute, but not today. as we are in contract roll-over mode.

Color on Order Flow:

Since the post Brexit VIX collapse, we have seen July upside being sold and the purchase of puts. Saw some Jul 16 put buyers today, Jul 13th weekly 16 put buyers, and a Jul 15/16 1×2 put spd being bot.

VIX upside is being bought in Aug, Sep, and Oct which is a little further out than normal, but probably reflects US election uncertainty.  We saw the Sep 21 straddle being bought today, Aug 20/30 call spread being bot today.

I would also add that VVIX has stayed on the high/nervous side relative to the selloff in spot VIX.  Probably reflective of the unknown ramifications of Brexit, the US elections, and fears around the European banks.