VXX- the New Trade King
VXX- the New Trade King
For a moment in time this week the VXX was headed into the basement of volatility history. It actually traded around $15.47 if you caught it down there. While the widely followed volatility name was plumbing the basement, the put buyers came out in droves . We will never know what caused the rally in the put volatility a couple of days ago but it had all the signs of paper (of ETN short gamma adjusters) piling into the bottom. Take a look at the IV charts from LiveVol below.
Charts by LiveVol (c) www.livevolpro.com
What is really nutty is the realized volatility of the VXX close to close and intraday. I have it hitting around 149% with the $1.5 daily moves. The implied is still firm at 80%+ (not a panic) but the VIX is not moving all that much. The combination of the big future premium crush (the way down) and the little selloff today (the way up) is causing the name to trade like an internet stock circa 1999. In reality there has not been this kind of intraday volatility since October of 2011 when the shitake was hitting the fan. The end result today of the VIX April future which much of the VXX derives its value was only up a .05 on the day. The intraday swings are king right now.
Note the sharpness of the intraday moves and volume spikes in VXX. There is a one way freight train and then it stops to change course. When it inflects lately, it does it big time. A part of this is the influence of the levered volatility ETPís (that is my speculation). Once the product managers hit the exits, the VXX changes direction pretty quickly. There is a trade in there somewhere.
The Trade
For now the VXX is showing great intraday moves. Even at an 80% IV the juice is cheap enough relative to the current moves. The key is patience until the direction turns then buy the contracts to ride the trend. The underlying moves are enough to produce decent intraday bucks. This chop will most likely continue as the levered products keep filling demand for buying the bottom of the VIX.
------------------------------------------------------------
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
View Mark Sebastian's post archive >
