The Celeri Journal #108: Selling Vol

Written by Michael

On July 1, 2020

Global Markets Recap

From ZeroHedge: “A 34 VIX signals 2-in-3 odds the market will be +/- 34% from here over the next one year. it also implies for the next month an average daily move of around 1.7%.” – Goldman”.

Discuss.

If you believe the Dow Jones will rally – or collapse – by 34% in the next year, buy VIX futures. If you think the daily range in the S&P 500 will bounce around by 2% every single day until August, you know what to do: go long the VIX, the most popular volatility index in the world.

Or maybe you’re a bear like me; a bear on volatility, that is. Then you’d take the opposite approach: sell the VIX. (N.B.: not investment advice; do your own research – I left trading for a reason.)

But worry not what your old pal Creads thinks. You wouldn’t be betting against me: you’d be wagering versus Jay Powell & the Fed & trillions of dollars in unleashed stimulus spending intended to do one thing: keep “vol” low.

I see a bunch of investors kvetching because Warren Buffett got corporate bond purchases from the central bank. Politely: these folks don’t get it; they don’t. The Fed ain’t propping up Mr. Buffett; they’re tamping down extreme market erraticism so all kinds of employers – like yours & mine – can borrow in properly functioning repo markets from banks & so that many of us have jobs.

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