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Buying Into a Slow Motion Rally


No reason to be hasty.

I bought some September gamma in SSO yesterday. It wasn't really to open, but rather to close out a combo where I was short calls in SSO and SDS.

The SDS calls are closing in on wallpaper status, so I've been buying strength here and there in SSO stock to hedge the short SSO calls. In light of both the volatility dip and the market (sort of) ramp, I changed course a little and went long SSO puts instead of short calls.

Now I'm not bullish on options volatility at this point, it's more a bet on realized volatility between now and September expiration. At 19 or so, volatility for ATMs, I just think it's a reasonable price for a little action next week, and I don't want to short it anymore.

As to that VIX and the 10-day SMA, it didn't quite close 10% below, so no trigger just yet. That being said, there's nothing magical that happens at 10% that doesn't happen at 9.5% or 9% -- it's an instrument that generally mean reverts, so a "stretch" away from an MA usually resolves fairly quickly.

Of course, it can resolve by simply sitting in a range for a few sessions, too. And that's what seems to happen when it's a counter-trend trigger, like this one.

The behavior this week does seem odd though. Classically, you would expect a cheaper VIX headed into a holiday weekend, followed by strength, which is really less than it appears.

Well, we got that Tuesday, but it's gotten clocked the last two days. So basically we spent all of August worried about a post-Labor Day market implosion, but when it didn't happen on Day 1, those worries are now gone?

Just odd. I don't think it's complacent so much as belated acknowledgment of reality. It's a slow motion, low volatility rally.
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