As option mentors we do a lot of teaching on VIX. ?When explaining the VIX one thing we like to discuss vol cycles. ?
The idea that the VIX has cyclical levels from low to somewhat low, to somewhat high, to high. ?Clearly when the VIX was in the 10’s and 11’s the VIX was in a cyclically low level. ?However, that appears to have changed (despite the sudden drop in realized volatility). ?Even throwing out last months vol pop one should be able to see that the VIX pattern shifted
LivevolX (r) www.livevol.com
Notice that the VIX is slowly climbing, and that despite the market being at an all time high, the VIX is still near 14. ?I think we have moved out of the ultra low VIX phase. ?Which means vol is in a slight up trend. ?I would call our current vol cycle somewhat low instead of low. ?This means that we should expect to see a few more 1%+ moves and a lot less sub ..25% moves.?
In addition, I think the market is setting up for a small sell off as, despite little movement in SPX, VIX has been rallying for a week.
The Trade;
High vol opens up tons of opportunities, the trade for now is to wait and look for opportunity as it pops. ?When a sector pops have dry powder to sell it, ? ?I would NOT blast premium everytime VIX crosses 15, I think that gig is up. ?On the flip side, I would buy premium when VIX gets below 13.