One of the other things I'm watching next week (and, in fact, that I look at daily) is the VIX. With VIX at 14.02, a sub-12 "fearlessness level" is within striking distance, so I'm looking to add to my long volatility position in here somewhere, assuming the price is right. The VIX bottom is not particularly "clean," but historically the low volatility periods are marked by a low range between 14 and 11.
When going long volatility, you're naturally not limited to going long VIX. You can also go long VXX, long UVXY, or short SVXY (an inverse). But when you compare and contrast the charts of VIX, VXX, and UVXY, something appears markedly "goofy" with the VXX and UVXY charts. That "goofiness" arises from cycles of backwardation and contango (mostly contango) and, as a result, the VXX and UVXY "bottoms" are somewhat fuzzier and more ill-defined than those of the pure fear index, the VIX.
Because of this "bottom fuzziness" in VXX and UVXY due to contango/backwardation, I use the VIX as my bottom guide if, for some reason, I'm not going to play VIX options to go long volatility, but opt to go long in VXX or UVXY instead (my general preference is to use VXX over UVXY if I'm not using VIX options; UVXY bid/ask spreads can frequently be grotesquely wide, making it difficult to get a fill at a "fair" price). When the VIX reaches the price I'm looking for, I then turn to the VIX derivative product and look at setups for taking advantage of VIX bottoming, such as a short put credit spread or a synthetic covered call.
So, you might be asking, "Why don't I short SVXY using options?" SVXY is an inverse volatility product, which means as VIX increases, SVXY declines and vice versa. Unfortunately, these volatility products have their own volatility. As SVXY declines, its volatility increases, so you may find your short call setup treading water as SVXY declines because, as it does so, its volatility increases, which affects the price of its options.
Moreover, SVXY -- as an inverse VIX derivative -- suffers from "inverse contango", which means that, generally, over time, its price will increase to infinity, assuming that "contango" is a constant push on its price. You'll notice that SVXY has had to reverse split a couple of times to accommodate this "inverse contango". Consequently, it's just more effective to go long volatility in the long volatility products, VIX, VXX, or UVXY.
When going long volatility, you're naturally not limited to going long VIX. You can also go long VXX, long UVXY, or short SVXY (an inverse). But when you compare and contrast the charts of VIX, VXX, and UVXY, something appears markedly "goofy" with the VXX and UVXY charts. That "goofiness" arises from cycles of backwardation and contango (mostly contango) and, as a result, the VXX and UVXY "bottoms" are somewhat fuzzier and more ill-defined than those of the pure fear index, the VIX.
Because of this "bottom fuzziness" in VXX and UVXY due to contango/backwardation, I use the VIX as my bottom guide if, for some reason, I'm not going to play VIX options to go long volatility, but opt to go long in VXX or UVXY instead (my general preference is to use VXX over UVXY if I'm not using VIX options; UVXY bid/ask spreads can frequently be grotesquely wide, making it difficult to get a fill at a "fair" price). When the VIX reaches the price I'm looking for, I then turn to the VIX derivative product and look at setups for taking advantage of VIX bottoming, such as a short put credit spread or a synthetic covered call.
So, you might be asking, "Why don't I short SVXY using options?" SVXY is an inverse volatility product, which means as VIX increases, SVXY declines and vice versa. Unfortunately, these volatility products have their own volatility. As SVXY declines, its volatility increases, so you may find your short call setup treading water as SVXY declines because, as it does so, its volatility increases, which affects the price of its options.
Moreover, SVXY -- as an inverse VIX derivative -- suffers from "inverse contango", which means that, generally, over time, its price will increase to infinity, assuming that "contango" is a constant push on its price. You'll notice that SVXY has had to reverse split a couple of times to accommodate this "inverse contango". Consequently, it's just more effective to go long volatility in the long volatility products, VIX, VXX, or UVXY.
