Volatility Index® @Cboe #VIX just tagged outside the range... but for what?

Key Concepts

• VIX: CBOE Volatility Index, a measure of market expectations of volatility over the next 30 days.
• VXX: iPath Short Term VIX ETN, an exchange-traded note designed to track short-term VIX futures.
• Volatility Range: The observed trading range of the VIX, currently estimated between 15.15 and 16.15.
• Rejection: The rapid reversal of price movement when the VIX approaches the 19-20 level.

VIX and VXX Trading Dynamics

The discussion centers around the recent trading behavior of the VIX and, specifically, the successful trade executed with the VXX (iPath Short Term VIX ETN). While the VIX has briefly moved outside its established range, these excursions have been short-lived. The speakers acknowledge instances where the VIX has experienced upward movement, causing some market participants concern, but emphasize the swiftness with which these gains have been reversed.

The VXX trade is highlighted as particularly noteworthy. The speakers express admiration for its timing and execution, noting that it achieved the desired outcome within the anticipated timeframe. Specific details regarding the trade’s strategy aren’t provided, but the implication is that it capitalized on expected volatility fluctuations.

Range-Bound VIX Behavior

A core observation is the VIX’s current range-bound behavior. The speakers estimate the VIX is consistently trading between approximately 15.15 and 16.15. They state that deviations from this range, while occurring, are temporary. The repeated attempts to break above the 19-20 level have consistently resulted in “rapid rejection,” meaning a quick price reversal downwards. This pattern suggests strong resistance at that level.

Market Observation and Current Assessment

The speakers advocate for a cautious, observational approach to the VIX. They suggest traders should “stare at it and know” the current range without needing to constantly monitor the exact price. This implies a belief that the VIX is likely to remain within the 15.15-16.15 range for the foreseeable future.

Supporting Evidence & Notable Statements

The evidence supporting the range-bound assessment is the observed price action itself – the repeated upward moves followed by swift reversals. There are no specific data points or statistics beyond the range estimates provided.

A notable statement is the enthusiastic assessment of the VXX trade: “how great was the trade for the VXX… absolutely amazing to me to see how that all played out.” This highlights the potential for profitable trading opportunities even within a relatively stable market environment.

Synthesis/Conclusion

The primary takeaway is that the VIX is currently exhibiting range-bound behavior, fluctuating primarily between 15.15 and 16.15. Attempts to move significantly higher, particularly above 19-20, have been consistently met with strong selling pressure and rapid reversals. The successful VXX trade serves as an example of how to potentially profit from these short-term volatility fluctuations. The speakers recommend a patient, observational approach, focusing on recognizing and reacting to movements within the established range.