Why VIX Isn't Going Anywhere
Index likely to spend rest of year in same range as last three months.
The chart below tracks the daily movements in the VIX back to August 2008 and shows how the gravitational forces working on the VIX have pulled it back from just shy of 90 to the low to middle 20s. This is still above the 19.00-22.50 range that prevailed in August 2008, but not by a large margin.
Click to enlarge
Even with all the uncertainties surrounding the upcoming earnings season -- which Alcoa (AA) technically kicks off after tomorrow's close -- I still think there's a strong probability that the VIX spends the balance of the year in the same range that it's been in during the past three months. In fact, with earnings next week from the likes of General Electric (GE), Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), Goldman Sachs (GS), Intel (INTC), International Business Machines (IBM), Johnson & Johnson (JNJ), CSX Corp (CSX) and others, I expect the tone for the balance of the year to be established in another two to three weeks, at most.
As volatility tends to escalate prior to earnings, there's a strong temptation to sell some options -- including VIX strangles -- before the third-quarter results start pouring in. I'll have more on some VIX short strangle trading ideas in short order.
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