Tuesday, July 28, 2015

The Current Volatility Situation and A Look Ahead

Hello everyone, I hope you have been doing well. We have seen many ups and downs with volatility over the last month. Here is a snapshot of the VIX Index.

In late June we saw the Greek drama unfold and present a very favorable shorting opportunity in the VIX. I initiated a position and exited when the VIX fell below 14. I did not expect that the VIX would touch 12. Better to be safe than sorry. It still proved to be a very profitable trade for me and I am happy with the results.

Greece still remains a wildcard for the future. I don't believe for a minute that they will be able to pay back the loan, given current conditions. I also don't know how they are going to jump start their economy without providing some sort of stimulus. Time will tell but for now Germany owns Greece.

Current Conditions

As you know, if you have followed me for any length of time, I am only looking to short volatility. Conditions remain too calm for this to have the proper reward to risk ratio for me. My advice would be as follows:

SVXY/XIV: Create some sort of stop loss or profit targets to exit your position.
UVXY/VXX: Avoid shorting as the choppiness in the VIX, and its current low position, make this rather risky. I always avoid long positions in these two.

Coming Up

Looking forward, I continue to predict increasing volatility for the remainder of 2015 and into 2016. Yellen has mentioned many times that it is the pace of rate increases, not the start that we should be concerned with. This leads me to believe that The Fed still finds September an appropriate time to increase rates.

We have some camps out there that believe The Fed will never increase rates. I don't know if I believe that but low rates could persist if economic conditions worsen. Economic data is currently mixed and skewed towards the positive side.

China should remain on your radar due to the spillover effects. People have been talking about the Chinese slowdown for years. By slowdown I am also talking about a crash or severe correction in their stock market. Is it finally happening? We will see. If it does happen, this will have a profound impact on the U.S. market. The global economy is now more interconnected than ever. One must be aware of the possible effects here at home.

This Blog

I received a comment on StockTwits that I should post daily updates on my blog. I think I should clarify why this blog was created. This is to supplement my SeekingAlpha library. Options strategies, general news, personal finance, and really anything else I want to write about will come here.

I am a school teacher and take my job and students seriously. During the school year it may be months before I post a new article or update this blog.

I believe in quality over quantity. If I updated this blog daily or posted daily I would essentially be no better than CNBC or any channel you tune in for financial news. It would be the latest headlines and nothing more. I think your time is more valuable than that and you are smart enough to know what is happening in the world on your own.

I make, on average, 2-5 trades in volatility per year. I have outlined the conditions that I look for in numerous SeekingAlpha articles. If you are watching the day to day swings in the market we have different trading styles and my writing just simply may not be for you.

The BEST thing to do would be to subscribe to this blog by email. Over the next few months, especially with the start of the new school year, I may publish 2-3 posts per month. These posts will be highly informative and filled with only what you need to know. No fluff, no daily news, just straight talk about what matters and when it matters. If an opportunity in the VIX presents itself, you can bet on me letting you know about it.

As always I appreciate you reading and I wish you a profitable end to 2015!


  1. The VIX is fun to play. When the VIX spikes, I do two things:
    1. I buy the VIX puts at 12-13 as the puts are relatively cheap (around .20-.25). When the VIX inevitably retreats (like it has much of this year), I usually double my return. If it’s around expiration, then it’s Christmas time because I might make 3X or more on my return.
    2. I usually sell “out-month” calls. Like when the VIX spiked to 18 a few days ago, I sold some Sep and Oct calls (at 25 or higher) for .50 or more. The margin is usually very low for out month sells.

    Now, when the VIX retreats, like it has much of this year, I buy long call spreads at (typically) 14/15 or 15/16. They’re only about .20-.25, so I may double or triple my return on a quick spike up to 16 or 17.

    It’s like taking candy from a baby.