Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
I have to think that this short-term leg down in the SP500 will not be finished at least until the VXO touched 18-19%.
VXO 18 was strong resistance for three and a half months (December-March) until the upside was violated on a spike to VXO 22. That, of course, proved to be a false breakout and equities, which often trade in the opposite direction of this widely accepted fear index, enjoyed a Snapper back to S&P 1150.
I don't see anything "magical" about VXO 18 as a level but it IS the 200-day moving average and will likely be a focus among active Minyans (if and when we get there). Currently, and after 'enjoying' a stochastic buy signal a few days ago, the VXO is dancing around the 50-day moving average (16.60). I don't think that'll matter in the short-term but it's worth noting nonetheless.
I will offer (again) that I sense a disconnect (in general) between the level of equity vol and the state of the Minx. We've discussed the outsized moves in the other asset classes and I remain of the opinion that it's a matter of time before we see the same type or action in stocks. Is that time right now? I can't tell you for sure (nobody can) but the potential for a trap door certainly exists.
There are a litany of strategies that can be employed to take advantage of this potential disparity. Professor Succo penned a piece earlier that discussed one such strategy but derivatives are like clothes--each person has their own preference and they can be changed daily. It should be stressed that options aren't for everyone and they should only be traded by professionals. The last thing you wanna do is put your hard earned money to work in an instrument you don't understand.
Thanks kindly and fare ye well,
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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