Friday, August 10, 2007

VIX means volatility

For those traders who are feeling a bit battle weary, confused, dazed and/or paralyzed at the trigger, I have included a nifty little attitude adjustment tool to help you regain your otherwise finely tuned trading brain functions. I have personally used it recently (and frequently) with some success.
As foreseen by everyone with a globex feed, the markets opened with a thud today and the VIX promptly popped up to 29.84 in the first 18 minutes, giving up some ground around midday and then running around 29 for most of the afternoon session. VIX and More has some interesting insights on today's VIX action and Bill helps explain how the VIX could stay elevated in the face of a rising market. For those (like me) whose lives center around watching 2 minute bars develop, there were definitely some strange divergences between the VIX, TRIT and NYAD bars, which are normally closely correlated in a binary fashion. I suspect at least a portion of this squirrelly behavior was the product of option market makers setting up for expiration week and on Saturday I'll post an in depth look at how this little game played out in WM (luckily I had my handy head banging tool close by).
The Qs actually held up pretty well after the overnight tumble and stomach churning first hour. The 3/7 DSMA was a touch, but not a cross, so I am still net long my big Qs position, now hedged 30% @ 46, 50% @ 47 and 20% at 48. I don't intend to load up on any more of these prior to expiration and am waiting to see how the current doji resolves. (Same EOD pattern for Qs and VIX). The tactical buying cutoff was really Tuesday .. after that theta accelerated, (regardless of the VIX) and each subsequent day until expiration is progressively less attractive due to the diminishing payoff. For now, I'm in a holding pattern.

No comments: