Almost Like It Never Happened

Another short chapter from "Make Volatility Great Again"

I suspect that a large number of market participants finished yesterday with a massive case of whipsaw. Tuesday sounded like REM (It’s the End of the World as We Know It) and yesterday was definitely Nevermind (take your pick of the Nirvana album, a very forgettable single from the Red Hot Chili Peppers or this techno poetry from Leonard Cohen).

Whichever sound track you choose, it was a wild couple of days. The VIX Mix plunged 30 points on Tuesday and then rebounded 14 points yesterday. Still mired in the red, but likely to claw its way back into the yellow by today’s close.

Yesterday, we suggested that hedgers were on the right side of the trade. But if that trade was a one-day deal, then monetizing those hedges becomes the name of the game. That can be extremely difficult with a bullish reversal almost as dramatic as the bearish swan dive.

Looking at the VIX futures term structure, we get another picture of “nevermind.” While spot VIX remained elevated relative to last Friday, the futures term structure dropped right back on top of Friday’s curve. That’s an almost eerie example of short-term memory.

With US markets just opening for regular trading hours, it appears we’ll see some additional recovery. Still some wounds out there. SVIX (1x inverse VIX futures aka short vol) is still about 2% below last week’s close after being down as much as 13%. Not that anyone should have been long SVIX coming into the week. Hopefully, the “heads up” we’d been talking about served its purpose. Now we let the dust settle a bit and look to confirm direction.

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