Trade idea
VIX Inverse relationship with S&P 500
The VIX futures and S&P 500 typically have an inverse relationship, where an increase in the S&P 500 is generally associated with a decrease in the VIX. However, this relationship is not consistent and can deviate, especially during volatile market conditions. The speaker notes that while there is a correlation, it is not reliable enough to be traded as a strategy due to its variability. The speaker suggests that a 10-cent move in VIX futures is usually good for a 10-handle move in the S&P 500, but this is not always the case. The speaker also notes that a 10% move in the VIX is usually associated with a 2% move in the S&P 500.
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StrategyInverse relationship with S&P 500
Assetvolatility index
Time horizonShort-term, with a focus on daily or intraday movements
Entry / triggerWhen the S&P 500 experiences a significant upward move and the VIX futures do not move in the expected inverse direction
Target / exitA 10-cent move in VIX futures for every 10-handle move in the S&P 500
Invalidation / stopIf the VIX futures move in the expected inverse direction, indicating the relationship is functioning as expected
SpeakerSpeaker
Risks- The inverse relationship may not hold during volatile market conditions
- The relationship is not reliable enough to be traded as a strategy
- The VIX is difficult to hedge with the S&P 500 and vice versa
Trade idea
VIX buy VIX futures or options
Given the current levels of implied volatility and the VVIX at 90, the expected move of the VIX is statistically likely to include a level above 20. This suggests that the market's volatility is expected to be significant, and traders should consider this when assessing potential moves in the VIX. The probability of the VIX closing above 20 before September 2026 is estimated to be over 90%.
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Strategybuy VIX futures or options
Assetvolatility_index
Expiration2026-09-01
Time horizonlong-term (2026)
Entry / triggerVIX closes above 20 before September 2026
Target / exitVIX closing above 20
Invalidation / stopVIX remains below 20 for the entire period
SpeakerMarket Analyst
Risks- The VIX may not reach the expected level due to unforeseen market conditions
- Volatility can be highly unpredictable, leading to potential losses
Trade idea
VIX Buy VIX futures and sell out-of-the-money calls on VIX
The speaker suggests a trade involving buying VIX futures and selling out-of-the-money calls on VIX, which is described as an expensive trade due to the lack of margin relief on either side. The trade is considered capital-intensive and not easy to make, but it is presented as an intelligent way to put the trade.
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StrategyBuy VIX futures and sell out-of-the-money calls on VIX
AssetVolatility Index
ExpirationNot specified
Time horizonNot specified
Entry / triggerVolatility under $19
Target / exitNot specified
Invalidation / stopNot specified
SpeakerSpeaker
Structure / legs- Buy VIX futures
- Sell out-of-the-money calls on VIX
Risks- High capital requirement
- Complex execution
- Potential for significant losses if the market moves against the trade
Trade idea
VIX volatility trading
The speaker suggests that if the VIX is above its long-term average and the market does not confirm macro narratives, it may be a good time to consider shorting the VIX. The rationale is that the VIX is a measure of fear, and if the market is not confirming macro narratives, it may indicate that the current level of fear is not justified. The speaker also emphasizes the importance of reducing delta before getting long vol, suggesting that shorting the VIX could be a more prudent approach in this scenario.
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Strategyvolatility trading
Assetvolatility
Time horizonShort-term (days to weeks)
Entry / triggerIf the VIX is above its long-term average and the market does not confirm macro narratives
Target / exitThe VIX returning to its long-term average
Invalidation / stopIf the VIX continues to rise above the long-term average
SpeakerMarket Talk
Risks- The VIX could continue to rise above the long-term average
- Market conditions could change rapidly
- The VIX is not a guaranteed predictor of future market movements
Trade idea
VIX selling premium into rich volatility
The speaker prefers selling premium into rich volatility, as it allows traders to get paid for taking risk. This strategy is more effective when volatility is high, as it provides a better risk-reward profile. The speaker expresses caution about low volume stocks during earnings season, suggesting that the strategy should be applied with care in such environments.
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Strategyselling premium into rich volatility
Assetvolatility_index
Expirationnear-term
Time horizonshort-term
Entry / triggervolatility is high
Target / exitvolatility reverts to lower levels
Invalidation / stopvolatility continues to rise
SpeakerScott
Structure / legs- short straddle
- short strangle
Risks- volatility continues to rise
- earnings announcements may cause unexpected price movements
- low volume stocks may not provide sufficient liquidity for effective premium selling
Q&A
What is the market movement in the VIX future?
The VIX future moved up by $28 to $1790, indicating a significant increase in market volatility expectations. The speaker notes that this is almost a 6% move, highlighting the magnitude of the change.
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Actionable takeawayThe VIX future's significant upward movement suggests heightened market uncertainty or fear, which traders should consider when assessing risk exposure or positioning in volatile assets.
Q&A
Is using the VIX as a main gauge for whether conditions are attractive enough to put trades on actually a useful framework or am I oversimplifying something that depends more on a single volatility number?
The speaker suggests that using the VIX as a gauge is useful, but prefers forward/VX for daily volatility movement. They note that the VIX predicts future closing values, while forward/VX reflects daily changes. The speaker emphasizes consistency in using a single metric.
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Actionable takeawayUse forward/VX for daily volatility movement rather than the VIX, which predicts future closing values.
Q&A
What is the current state of the market?
The market is experiencing significant volatility, with the S&P 500 down 30 points at the opening, rallying to a 15-point decline, and then falling further to a 65-point decline. Other assets like gold, silver, and Bitcoin are also down, while the VIX is up.
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Actionable takeawayThe market is showing signs of fear and uncertainty, with multiple assets declining and the VIX indicating increased volatility.
Q&A
How does the VIX reflect expected S&P 500 volatility?
The VIX reflects expected S&P 500 volatility over the next 30 days, and the futures curve shows traders' expectations for future volatility at different dates.
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Actionable takeawayThe VIX is a measure of expected volatility, and its futures curve indicates traders' expectations for future volatility at different time horizons.
Q&A
What is the significance of the VIX as a product for retail traders?
The VIX is considered the most misunderstood and misused product for retail traders. The speaker notes that the VIX futures roll up by almost a dollar each month due to the leverage involved, which is not widely discussed.
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Actionable takeawayThe VIX is a complex product with significant leverage that can lead to unexpected outcomes, making it challenging for retail traders to use effectively.
Q&A
How much of my trading capital should I allocate to short premium positions when the VIX is under 15?
The speaker suggests that for accounts under $50,000, a 40% allocation is acceptable when the VIX is under 15. However, for larger accounts, this level is considered too high. The speaker's current allocation is in the mid-20s, reflecting a low VIX environment.
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Actionable takeawayAdjust capital allocation based on VIX levels, with lower allocations for low VIX environments.
Q&A
What is the current state of the market?
The speaker discusses the current market conditions, noting that Bitcoin is down 460, oil is down 23, S&P 500 is up 27, gold is up 49, NASDAQ is up 185, silver is up 377, VIX futures are down 23, and cash is down 24. The speaker also mentions Micron's stock is up 21 in change today.
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Actionable takeawayThe market is showing mixed performance with some assets rising and others falling, indicating a volatile environment.
Q&A
Do you use the same like portfolio allocation percentage based on the VIX range if it's cash secured versus margin?
No. You have to think about things differently. In a IRA account, if you're selling puts in their cash secured, you can go to the entire account balance.
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Actionable takeawayPortfolio allocation strategies differ between cash secured and margin accounts, with cash secured allowing for higher leverage.
Q&A
What do you think the VIX one-day volatility is right now?
The VIX one-day volatility is reported as 564, indicating extremely low volatility and a market halt.
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Actionable takeawayThe VIX at 564 suggests a market in a state of near-zero volatility, which is unusual and may indicate a lack of market activity or uncertainty.
Q&A
What do you think for today?
The speaker is suggesting that the market is currently in a state of uncertainty, and that the Vix is a good indicator of market sentiment. The speaker is also suggesting that the market is currently in a state of consolidation, and that the Vix is a good indicator of market sentiment.
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Actionable takeawayThe speaker is suggesting that the Vix is a good indicator of market sentiment, and that the market is currently in a state of uncertainty.
Q&A
Are there mechanical average true range or VIX or market IV metrics for intuitive deltas to sell?
If the VIX is below its historical mean (17-19 range), widen the strikes and go out longer dated. If it's above that, you can afford to get a little bit richer.
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Actionable takeawayUse VIX levels to determine strike width and expiration dates for premium selling strategies.