Opportunity to close VIX trade

Posted on 07/27/2011


On July 5th, I wrote about a largely anomalous situation where Index Equity vol (as measured by the Vix) was trading at a discount to historical vol. I recommended a long vol position based on market complacency, Greek situation, etc. ( https://mrktjunkie.wordpress.com/2011/07/05/rarely-do-you-see/ ) .

Two weeks later you had the opportunity to exit that trade at a considerable profit when the Greek sovereign debt risk sparked another round of selling in a number of markets.

In the event that you are still long the VIX (cash/etf or futures) I would recommend taking that position off on the close today or on the market open tomorrow (at a tidy profit I might add). A 1 point move in VIX futures = $1,000. Futures were 18.00 (ish) when I wrote on the 5th. As I write, front month VIX futures are touching 21 again. They very well may head higher, but I expect the market to catch a bid if/when we touch the 1300 level or if we flirt with the 200 day moving average again (which right now is 1283).

This selloff is on ABOVE average volume. If we break the 200 day MA…..I would recommend considerable caution.

Good guys 2 – Market 0 !