The Tier1 Alpha morning note expresses a more sanguine view:
vol up, spot up tends to get a lot of attention. However, it’s important to note that this is actually a very common dynamic, given that around 1/3 of all record highs in the SPX since 1993 have occurred alongside a rising VIX. In other words, it’s not especially rare, nor is it typically a sign of impending doom.
Instead, it often comes down to either new strikes entering the VIX calculation on the call side, or the vol surface recentering around the higher SPX level. In yesterday’s case, it was the latter, with the vol surface genuinely repricing higher around the new SPX level and more than offsetting the usual decline in VIX that comes with higher spot.
I do not. My background is in credit, from lev fin down to distressed. I need analysts like you and Tier1 to tell my layperson’s brain what’s going on in this space.
oof. I did bankruptcy/restructuring work many many years ago after Drexel blew up. Don't miss it. David Pegler at Tier1 is a friend. Smart guys. I read it every day looking for breadcrumbs.
Listman has been making noise for a short while now that UVXY is due for a 100% move Sometime this fall. This is always the result of VIX backwardation, and that's often the result of unhappy events, whether macro or market or both.
So I believe ( and I'm a nobody) that sometime in later October, when I am on my annual get unplugged trip to the Caribbean, Listman's prediction will come true and I will have to plug in manage through something I thought was taken care of but got overlooked. Happens every year.
Jim,this is the market telling us that unhappiness is coming.
At least I believe it is. Could just be one of those things. 🫤
I would agree that the current market behaviour looks eerily fragile, but as we now, this can carry on longer than expected lacking any additional catalyst. Regarding this: I wonder if the current wordwide water crisis may turn into a unprecedented liquidity and inflation crisis. Besides agricultural devastation, it affects energy generation, transport via waterways and this is it all driving inflation.
The market up/vol up and then market down/vol down action certainly has had my attention. But the other condition some of my indicators have been highlighting is that the steepness in the VIX futures curve as well as the CBOE vol curve are at historically wide levels. Is the vol market "too healthy"?! It's also interesting to see August VX holding on to 1+ vol points of premium so close to expiration. Maybe it's expecting a decent Monday VIX pop to close the gap? Maybe next week's expiration shakes things up a bit?
Good questions for which I have no answers. My lessons from history tell me that nothing terrible can happen with the "complex" configured as it is. But my head is on a swivel for sure. Appreciate this dialogue with someone also deep in the weeds.
The Tier1 Alpha morning note expresses a more sanguine view:
vol up, spot up tends to get a lot of attention. However, it’s important to note that this is actually a very common dynamic, given that around 1/3 of all record highs in the SPX since 1993 have occurred alongside a rising VIX. In other words, it’s not especially rare, nor is it typically a sign of impending doom.
Instead, it often comes down to either new strikes entering the VIX calculation on the call side, or the vol surface recentering around the higher SPX level. In yesterday’s case, it was the latter, with the vol surface genuinely repricing higher around the new SPX level and more than offsetting the usual decline in VIX that comes with higher spot.
Do you pay attention to CBOE's VIX decomp tool? Do you have an opinion about it?
I do not. My background is in credit, from lev fin down to distressed. I need analysts like you and Tier1 to tell my layperson’s brain what’s going on in this space.
oof. I did bankruptcy/restructuring work many many years ago after Drexel blew up. Don't miss it. David Pegler at Tier1 is a friend. Smart guys. I read it every day looking for breadcrumbs.
I rarely comment but just wanted to say thank you. I find your work excellent!👏
Much appreciated.
Listman has been making noise for a short while now that UVXY is due for a 100% move Sometime this fall. This is always the result of VIX backwardation, and that's often the result of unhappy events, whether macro or market or both.
So I believe ( and I'm a nobody) that sometime in later October, when I am on my annual get unplugged trip to the Caribbean, Listman's prediction will come true and I will have to plug in manage through something I thought was taken care of but got overlooked. Happens every year.
Jim,this is the market telling us that unhappiness is coming.
At least I believe it is. Could just be one of those things. 🫤
I am preparing for some market unhappiness and hope to make the most if and when it arrives.
whoever invented mean reversion was a genius 😀
I would agree that the current market behaviour looks eerily fragile, but as we now, this can carry on longer than expected lacking any additional catalyst. Regarding this: I wonder if the current wordwide water crisis may turn into a unprecedented liquidity and inflation crisis. Besides agricultural devastation, it affects energy generation, transport via waterways and this is it all driving inflation.
Good question. Water hasn't caught my attention. I'll need to read up on that.
The market up/vol up and then market down/vol down action certainly has had my attention. But the other condition some of my indicators have been highlighting is that the steepness in the VIX futures curve as well as the CBOE vol curve are at historically wide levels. Is the vol market "too healthy"?! It's also interesting to see August VX holding on to 1+ vol points of premium so close to expiration. Maybe it's expecting a decent Monday VIX pop to close the gap? Maybe next week's expiration shakes things up a bit?
Good questions for which I have no answers. My lessons from history tell me that nothing terrible can happen with the "complex" configured as it is. But my head is on a swivel for sure. Appreciate this dialogue with someone also deep in the weeds.
Front month / 3-Month Contango is at levels it was at before we started the December 2025 > March 2026 swoon. Not good.
Almost too "healthy." Watching for signs of deterioration.
Great post!