Watch my new YouTube video: “Trend of the Week Low VIX in a risky market?”

Watch my new YouTube video: “Trend of the Week Low VIX in a risky market?”

This week’s Trend of the Week asks Why, despite all the turmoil in the markets, has the CBOE Volatility Index–also known as the VIX, or the “Fear Index,” remained so low? I think this should signal to us that the market has not currently worried in the near term about long-term problems it knows are coming down the road, like rate hikes and a recession at the end of 2022 or in 2023.. In the VIX’s short-term view, there’s no need to worry. Time to put a call on the VIX?

Selling my VIX Call  Hedge–and a reminder of why we hedge and when we buy

Selling my VIX Call Hedge–and a reminder of why we hedge and when we buy

The CBOE S&P 500 Volatility Index (VIX) is up another 8.87% today to 27.83 on another drop in stocks and continued worry about the effect of looming Federal Reserve interest rate increases. Today I’m going to sell the February 16 VIX Call Options with a strike of 20 (VIX220216C00020000) that I bought on December 31, 2021 in my Volatility Portfolio. I bought those Call Options for $380 a contract and I’m selling today, January 21 with those options trading at $710 a contract as of 2:45 New York time. That’s a gain of 86.8% on this position in roughly four weeks.

Selling my VIX Call  Hedge–and a reminder of why we hedge and when we buy

Buying VIX Call Options today as hedge on January shift in sentiment away from complacency

The CBOE S&P 500 Volatility Index (VIX) hasn’t moved much so far in today’s session. The so-called “fear index” is down just 0.23% to 17.26 as of 3:20 p.m. New York time. But there’s been strong action in the options market with risk hedges for the end of January and the middle of February showing losses. I’m going to use today’s selling to buy two VIX Call positions in the Volatility Portfolio.

Remember that volatility creates volatility–time to look to some tax loss selling (like Nektar)

Remember that volatility creates volatility–time to look to some tax loss selling (like Nektar)

With the VIX “fear index” falling back closer to “normal” levels–it dropped to 21.89 yesterday from 31.12 on December 1–it sure feels like the extreme volatility of the end of November and early December is on the ebb. The move to yesterday’s 21.89 close from December 1 was was a surge of 30% in the CBOE S&P 500 Volatility Index in a week. This move away from panic follows on a jump in the “fear index” in the week from November 24 to December 1 of 67% in the opposite direction. I’d be surprised if we don’t see another surge in volatility in the rest of December or in January with what promises to be a crazy earnings season, but even if volatility holds at something like today’s level–slightly elevated from the historical averages but in the rough ballpark–don’t forget that volatility has a long tail. Volatility, in fact, creates volatility. And not least of all in individual stocks.

Selling my VIX Call  Hedge–and a reminder of why we hedge and when we buy

Selling my VIX Call Options on market open Monday

On the theory that after Friday’s panic, we will get at least a modest recovery on Monday, I’m selling the three VIX Options in my Volatility Portfolio as soon as the market opens on Monday. The CBEO S&P 500 Volatility Index (VIX) jumped 54% on Friday to close to 28.62. My opinion is that we’ll see the “fear index” give back some of that jump on Monday if the market stabilizes. (If you think the market will plunge further, you should, obviously, hold onto your VIX Call options.