Path to 100 VIXI wrote this note on TVC:VIX a few days ago:
www.tradingview.com
And am now expanding it a bit more.
As someone who was working middle office during the original 2016 Trump Election, Brexit, during the Taper Tantrum and a few other major events - I want to lay out my principles on trading the VIX because spikes like this bring a lot of "first time" VIX traders to something that trades like NOTHING ELSE in the market.
This is not a stock in a short squeeze, this is not a generic index.
This is like nothing you've ever traded before. In fact, I'd encourage you to take advantage of TradingView's chart options and instead look at the chart of -1*$TVC:VIX.
That alone should give you pause.
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So - let's start with the principles of the finance business as laid out in the masterclass which was the movie "Margin Call" .
"John Tuld: There are three ways to make a living in this business: be first, be smarter, or cheat."
1. Be First.
You are not first if you are buying above the historic average of VIX 20-21.
If you were buying CBOE:UVXY since Jan 2025, you'd be up 175% right now and likely looking to re-balance into your desired long term asset positions.
2. Be Smarter.
* Are you taking into consideration the VIXEX Cycle?
* Do you know the effect of VIXEX before or after monthly OpEx?
* Do you know the current implied volatility curve of options ON the VIX?
* Do you know that of the last 4 times the VIX has hit 50, it went on to 80+ 50% of the time after that?
* Yes, I've seen the charts going around about forward S&P X year returns but did you know that after the VIX spike to 80 in October 2008, the market (in a decreasing volatility environment) went on a further 35% decline in the next 4-5 months?
* Where is the MOVE? What are the bond indexes & bond volatility measures doing? And if you don't yet understand that equities ALWAYS reacts to what is going on in the rates / yield world... you'll find out eventually. I hope.
3. Cheat
When things start going wrong, everyone wants an easy solution.
That's why its called a relief rally. It feels like relief - the bottom is in, the worst part is over.
But that is what the really big players have the biggest opportunity to play with the day to day environment.
They know our heuristics. They encourage the formation of cargo cult style investing whether that's HODL in the cryptocurrencies or Bogleheads in the vanguard ETFs.
It's all the same and encourages you to forgot first principles thinking about things like:
1. Is this actually a good price or is it just relatively cheap to recent history?
2. Who's going to have to dilute to survive the next period of tighter lending, import costs from tariffs, or whatever the problem of the day is.
3. VIX correlation - volatility is just a description of the markets. Its not a description of the direction. There is periods where volatility is positively correlated to the price movement (like during earnings beats). Know about this and know when it changes.
4. Etc.
Some have pointed out that is more appropriately a measure of liquidity in the SPX.
When VIX is low, that means there is lots of "friction" to price movement. It means that there is tons of orders on the L2 book keeping the current price from moving in any direction too quickly.
When VIX is high, that means there is very low "friction" to price movement. It means there are very few orders on the L2 book and market makers can "cheat" by appearing to create a low volume rally and then rug pull that price movement very quickly (not via spoofing, more just dynamic management of gamma & delta hedging requirements).
Additionally - volume itself becomes deceptive. Volume is just indicating that a trade happened.
Its not telling you to what degree the spread between the bid and ask has blown out to 1x, 2x, or 5x normal and that trades are executing only at the highest slippage prices in that spread.
All of these things are considerations that the market makers can use to make a "buy the dip" situation that works heavily to their advantage.
TLDR: "If you can't spot the sucker in your first half hour at the table, then you are the sucker"
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So - why / when would VIX go to 100?
In 2020, its easy to forget that a culmination of things stopped the crash at -35%.
* March 17, 2020 VIXEX wiped out a significant amount of long volatility positions.
* March 20, 2020 Opex wiped out a significant proportion of the short term put positions
* March 20, 2020 Fed Reserve announced to provide "enhanced" (i.e. unlimited) liquidity to the
markets starting Monday March 23, 2020.
* April 6th, 2020 Peak of Implied Volatility (point where options "most expensive") - which meant that buyers / sellers started providing more & more liquidity following this point.
In 2025, we have yet to see:
* Any motion towards intervention from the Fed for liquidity.
* Any motion from the significant fundamental investors (we're not close to an attractive P/S or P/E on most stocks for Buffett & Co to start buying)
* Any significant motion from companies on indicating strategies about capital raises, layoffs, or other company level liquidity reactions.
* Any "reset" of options in either volatility or hedging. Numbers below as of April 9, 2025:
- SPY 2.8M Put OI for April 17
- VIX 3.5M Call OI for April 16
Just an example but maybe IF we see those clear and NOT get re-bought for May Opex... we might be ready to call a top here at 50 VIX.
Otherwise.... we're just at another stop on the path to 100.
