That's a great analogy. Vol sellers stepped back in surprisingly soon this time around. Usually takes 12ish days before VIX recedes. But I'm also reading that maybe the 65 was a bad print (due to lack of liquidity during pre market) so the whole thing was mispriced. With Jackson Hole coming up (and markets too dovish), plus election in Nov, certainly feels like VIX-plosion round 2 could hit these short vol trades again (the hurricane you referenced).
Great write up. People get very confused when moves like last week come around. Once you understand how the market tends to over exaggerate moves and the negative gamma effect market makers can have on market movement it gets a lot easier to understand, or at the very least just accept without shaking your fist in the air.
Thanks for reading! We were confused too at first but we listened to our indicators. Your comment about shaking your fist in the air is so true; I find a lot of investors get stuck on what the market *should* do instead of what the market *is* doing and trade according to that view. If the market is going up, you need to go with it.
From here, just after the retail sales print, the difficulty is deciding whether we experience more chop or approach new highs as liquidity conditions improve. Cautious optimism with reasonably tight stops?
Yep the retail sales print confirms our underlying thesis that macro is resilient. We feel like a broken record! We had bought earlier this week (will write about it on Sunday) but now it feels it has moved too much too fast. Not out of the woods yet, as Weds' post explained. I think we could get some more chop and look for an entry in Sept or even Oct.
I think buy stops are more important at this point. If this thing rips to new highs, you want to be dragged into the market. Too many times I've seen people waiting for the pullback or expecting a double dip, only to watch it rip and they're stuck in cash. Lock out rallies are the WORST for performance when in bull market if you're in cash.
The VIX is almost back to where it was two weeks ago. It’s like insurance companies lowering rates in the eye of a the hurricane.
That's a great analogy. Vol sellers stepped back in surprisingly soon this time around. Usually takes 12ish days before VIX recedes. But I'm also reading that maybe the 65 was a bad print (due to lack of liquidity during pre market) so the whole thing was mispriced. With Jackson Hole coming up (and markets too dovish), plus election in Nov, certainly feels like VIX-plosion round 2 could hit these short vol trades again (the hurricane you referenced).
Great write up. People get very confused when moves like last week come around. Once you understand how the market tends to over exaggerate moves and the negative gamma effect market makers can have on market movement it gets a lot easier to understand, or at the very least just accept without shaking your fist in the air.
Thanks for reading! We were confused too at first but we listened to our indicators. Your comment about shaking your fist in the air is so true; I find a lot of investors get stuck on what the market *should* do instead of what the market *is* doing and trade according to that view. If the market is going up, you need to go with it.
Great unbiased writing for both sides of the argument.
Glad you enjoyed it!
From here, just after the retail sales print, the difficulty is deciding whether we experience more chop or approach new highs as liquidity conditions improve. Cautious optimism with reasonably tight stops?
Yep the retail sales print confirms our underlying thesis that macro is resilient. We feel like a broken record! We had bought earlier this week (will write about it on Sunday) but now it feels it has moved too much too fast. Not out of the woods yet, as Weds' post explained. I think we could get some more chop and look for an entry in Sept or even Oct.
I think buy stops are more important at this point. If this thing rips to new highs, you want to be dragged into the market. Too many times I've seen people waiting for the pullback or expecting a double dip, only to watch it rip and they're stuck in cash. Lock out rallies are the WORST for performance when in bull market if you're in cash.