Is the short VIX trade over? Here’s the long and the short of it. (August 10, 2017)


Tonight we are looking at the VIX ( INDEXCBOE:VIX ) here, specifically the UVXY ( NYSEARCA:UVXY ). It is a double your fun long VIX ETF. Plenty of liquidity, if you count today it is about 70 million shares traded.

Here is the thing: This thing has been going down forever. You see a lot of articles written on the VIX ( INDEXCBOE:VIX ) going back for a while, specifically how everybody is short the VIX ( INDEXCBOE:VIX ). That the market is just projecting low volatility forever. It has been one of those things that, you see a lot of articles on zero hedge, various other publications that talk about how, “Hey man, this is kind of a powder keg just waiting to go off. We don’t know when it is going to be, etcetera, etcetera.” I don’t really see any predictive stuff as far as timing but just kind of a cautionary tale. The easiest trades are typically not the ones that last forever even though you think they will.

What am I leading up to? I am leading up to the fact that I think this probably has more to go. If we look at the VIX ( INDEXCBOE:VIX ) you will see (I have changed it to a line chart here), you will see that this gets really, really spiky. The time to make money on this is on these big spikes. But up here at 16.00 it is just high relative to what has happened before this year. But relative to the big spikes in the market we still got a ways to go here in the VIX ( INDEXCBOE:VIX ).

The good news though, if you just look at these spikes in the VIX ( INDEXCBOE:VIX ), relative to the market, the red line is the S&P ( INDEXSP:.INX ), you are going to see that the big spikes, here, correspond to lows here. Big spike here, corresponds to this low. What I am telling you is, these big spikes, like this, lead to buying opportunities. So I am looking for a rally maybe tomorrow, maybe the next day. I don’t see this selling continuing for very long. If you are looking at the market, if you are looking at the S&P ( INDEXSP:.INX ) and you are thinking, “Oh my gosh! This thing is just going to plunge.” It always feels that way when this happens.

What I am telling you is, with the VIX ( INDEXCBOE:VIX ) so high we are due for a little bit of a relief rally. But, the way this thing is trading, UVXY ( NYSEARCA:UVXY ), think about this, you have got a lot of stops in here. A lot of stops on short positions and I think those stops are going to wind up getting triggered, which should drive this VIX (UVXY ( NYSEARCA:UVXY )), up a little bit more tomorrow. If you are long already stay long but make it a pretty short-term trade.

What I am talking about is, before the end of the day tomorrow I would be cleared out of here. Because this market, frankly, it is trading like the missiles are going to be trading over the weekend; and if they do you shouldn’t really care because there is going to be more important things on your mind than counting your money. And if they don’t, you are going to see a tapering off of volatility. Anyway, short-term bull. Long-term, get back out, look for a rebound in the market.

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