Category Archives: Trading Ideas

Another Huge VIX Bet

Richy RichBloomberg reported today (here) a $5 Million VIX bet – 40,000 April calls with the VIX at 15.5 – this follows the $6 Million spread I saw in November  (here).

Things are getting interesting.

The trader purchased 40,000 April calls on the VIX with a strike price of 22 for $1.28 each, according to Trade Alert LLC. The bullish volatility bet was the biggest single block of options to change hands on U.S. exchanges, the research firm said. The VIX rose 0.8 percent to 15.54 today.

Investors are positioning for a possible jump in volatility with stocks poised for the biggest annual advance since 2003 after the Federal Reserve refrained from reducing monthly bond purchases. The central bank may begin reducing its $85 billion of monthly bond purchases at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, up from 17 percent in a Nov. 8 poll.

“Customers continue to hedge their stock-market risk by buying upside calls in the VIX,” Mark Caffray, who brokers contracts on the index for clients at Chicago-based PTR Inc., said in an interview. “There have been very aggressive customer buyers of VIX calls in March 23, April 24, and today April 22 call strikes,” he said. “We do not expect this activity to subside until a Fed decision on tapering.”

An explanation from ZH which also suits this trade; “everyone remembers the summer very vividly, the last thing anyone wants is to be the last Kool-aid drinker at the centrally-planned party.”

That was fun

There we have it.

The S&P in moderate panic mode on news (presumably) that a budget deal is in the works. So good is bad for another Fed fix. It’s been a long time since we saw such a smooth ride down. I like this chart, look where we stopped, surprise.

ES Chart

For those of you looking at Fib extensions we have a bit more downside. (Or not…) What was so fun (and profitable) about today’s trading was the failure to find 1800 again and then the breakout under 1792.

These opportunities are rare these days, it was a beauty.

ES Chart Levels

The VIX screamed higher 10% to 15.42. This in itself isn’t so extreme, but if the end of the week shows some follow through we’re in for some volatility. Finally!

The other possibility is we’re going to find a range here 1775 -1805. That also offers some interesting possibilities.

Good Trading.

Selling Vol on the radar.

Following a $6.7 Million VIX Call Spread

On October 18th Bloomberg published an article (here) about a trader or institution that bought 160,000 February 24 calls and sold February 29 calls (in equal measure).  The open interest today is at 170,000 and the cost for the trader on October 18th was 42 cents per contract or $6.7 Million. I’m following this trade for fun.

It was very likely a hedge against the SPY (or maybe some SPX futures?). Almost 30 days later the pair would trade at about the same price but what’s interesting is to imagine what this trader/institution had on the other side.

Look at the 6 month VIX and SPX chart below.

VIX-SPX-Call Spread

The SPX is up about 50 points since October 18th and the VIX has barely budged from 13. What would the hedge be? Long SPX or short SPX? It’s a call spread so presumably long SPX (remember VIX has a pseudo inverse relationship with the SPX). The hedge will make money as volatility increases and a quick look at the chart above shows strong resistance at 13.

So how many shares of the SPY (or SPX futures) would you own, if you put in place a $6.7 Million hedge? That’s a good question…  But whatever their long position even 30 days later, it looks like a good trade.


Using the VIX for Trade Entry Signals

With the popularity of the VIX and VIX futures being overly used as a volatility hedge, I’ve been thinking about the signals it might give for medium term entry or exit points. If you chart the VIX and overlay Bollinger Bands (20,2,SMA) and look at the SPX, you’ll notice something interesting. Remember the VIX is forward-looking. The other indicators are price biased, and historical.

When the VIX breaks over the upper Bollinger band, you’ll see a low point directional change in the SPX. This isn’t a completely new idea, I was at a seminar recently which looked at combining this with Chandelier as a trading strategy. I’m going to just stick with the Bollinger Bands, the VIX and ATR. That’s where I see the most interesting information.

I mention ATR (Average True Range) because the 1 day ATR helps confirm long entry points.

Everything is in the chart below. The long signals look better than the short signals.

VIX SPX Bollinger

Good Trading.

Missed Gold Trade of the Day

It’s always good to go back and review your trades, so I hear… This is the trade I thought about, lines drawn, etc. but didn’t pull the trigger on. The RSI was indifferent, telling me nothing at all. When that happens, I sometimes go get a coffee, walk the dog or turn to other contracts. I could have setup buy orders on what eventually turned into a nice breakout. This was staring me in the face and I missed it. C’est la vie…

Have a good weekend.

Gold Chart

Bragging Rights

Semifinals, then buried…  I made one trade that I was proud of and several that I should have avoided. These were my first round trades:

CL BOT 1 105.63 11:07:58 20130920 NYMEX
CL SLD 1 105.54 11:12:10 20130920 NYMEX
CL SLD 1 105.5 11:21:51 20130920 NYMEX
CL BOT 1 105.49 11:30:18 20130920 NYMEX
GC SLD 1 1357 11:44:20 20130920 NYMEX
GC SLD 1 1358 11:46:04 20130920 NYMEX
GC BOT 1 1352.4 12:00:05 20130920 NYMEX
GC BOT 1 1351.4 12:01:00 20130920 NYMEX

I was looking for a breakout based on the support lines, and when the second candle couldn’t get past my support, it was a good signal to sell/reinforce the short. Could have gone the other way, of course, but the RSI was falling, and I was sitting in front of 200 people. The trade felt right, and when I heard one of the other contestants chase/scalp the momentum, I knew it was a good trade.

The Chart for the good trade(s) looked like this:

Gold Chart

So… Next the bad trades.

These were nearly all bad, my second round trades, under presssssuuuurre!

CL BOT 1 105.37 14:32:57 20130920 NYMEX
CL SLD 1 105.38 14:36:32 20130920 NYMEX
CL BOT 1 105.48 14:38:07 20130920 NYMEX
CL BOT 1 105.4 14:39:40 20130920 NYMEX
CL SLD 1 105.25 14:47:50 20130920 NYMEX
CL SLD 1 105.21 14:47:50 20130920 NYMEX
ES BOT 1 1715 15:01:40 20130920 GLOBEX
CL BOT 1 105.42 15:07:31 20130920 NYMEX
CL SLD 1 105.44 15:07:51 20130920 NYMEX
ES BOT 1 1713 15:18:57 20130920 GLOBEX
ES SLD 1 1711.75 15:21:53 20130920 GLOBEX
ES SLD 1 1711.75 15:21:53 20130920 GLOBEX
GC BOT 1 1338 15:28:46 20130920 NYMEX
GC SLD 1 1338.2 15:29:30 20130920 NYMEX
CL SLD 1 105.07 15:34:40 20130920 NYMEX
CL SLD 1 105.06 15:35:43 20130920 NYMEX
CL BOT 1 105.09 15:37:12 20130920 NYMEX
CL BOT 1 105.18 15:37:43 20130920 NYMEX
GC BOT 3 1338.7 15:51:56 20130920 NYMEX
GC SLD 2 1337.9 15:58:24 20130920 NYMEX
GC SLD 1 1337.8 15:58:24 20130920 NYMEX

Just seeing the number of trades you could tell I was chasing. I’m sitting up there with 3 other guys who know how to scalp very well. And I’m thinking, shit… Look at this churn, look at this churn.

Videos of the first round are on youtube. (here and here)

More Downside?

I wasn’t completely blindsided by this pullback, but the head-fake after bouncing off the 50% fib scared me off my short trades. That’s the way it goes. What could have been a beautiful setup falls into the category of live and learn.

Here’s part of the bearish argument; here’s atleast one reason not to jump back in long, yet.

  1. Rising Historical Volatility – the last 3 times we passed this HV level there was more downside.
  2. Testing the 50% Fib, again
  3. The upward channel works until 1600.
  4. That 1600 falls at the 23.6% fib

S&P 500 Futures ChartI’m expecting some churn here, we’ll see.

Good Trading.