Vol begets vol.
Stocks got a nasty jolt yesterday?morning when the ECB took a step into the unknown with a continued push for negative interest rates in the EU.? 6 years ago when things needed a jolt I can see the Monetary Priming have a material affect that was so lacking in the 1930?s.? Now that we are in round 6 or 7 the diminishing returns are in.? Volatility got a massive bid up.
Normally with less than 2 weeks to go we would see bigger contractions in front month premiums in VIX futures.? Even with the 2.07 point run in VIX the futures stayed in a nice contango albeit a flatter term.? The future traders are not ready to throw in the towel on this vol rally yet.? Vol begets vol.
A jump in VIX also brings the downside into play as increasing volatility increases the cost of just about everything.? As has been the case, stocks can shrug off this temporary blip and return to the orbit of the 2050 handle in SPX.? In that case we see 14 VIX again. ?Enough of the monetary Patty Fingers already. (cue the Quiet Man)
The Trade
We are deep in the VIX Apr cycle so these options are very responsive.? I like to fade the VIX rally with an VIX Apr 20 exp 17 put and buy a cheap upside call fly just in case.