Oklo Inc

 

Buy the VIX Now?

Now you have to...

Complacency and calm, that is the way to describe the general sentiment in the markets right now and we are hearing more and more "volatility is dead" trades presented. However, never ever forget that volatility is mean reverting. The actual VIX level at its natural floor, combined with the most extreme VIX call skew we have ever seen and several extreme technical positioning indicators, leads us to put on cheap VIX call spreads. To be clear, this is not a call that stocks will crash - this is a call on VIX upside optionality.

The saying is that you should buy VIX when you can, not when you have to - but this time it is slightly different - you have to buy it because the trade is simply too attractive to ignore.

1 - Natural floor

VIX is close to the "modern days" natural floor. Volatility is mean reverting, so don't expect much lower levels of volatility.

Source: Refinitiv

 

2 - VVIX not buying it

The latest gap between VVIX and VIX is very wide. You pay attention to well bid VIX, despite things moving little at the moment.

Source: Refinitiv

 

3 - A record skew

VIX call skew hit all time high of 1.5x (the 3 month 5/50 delta call). Volatility is low, but tails are priced extremely rich. This makes VIX call spreads attractive.

Source: GS/Garrett

 

4 - The puke

VIX specs have puked "it" since the election. They are back to running rather big shorts. Such big changes in specs could become a problem should things start to move again...

Source: Refinitiv

 

5 - The chasers

ETNs are huge buyers of VIX should things get a little less calm. We have seen this movie play out before.

Source: Nomura

 

6 - The Christmas gift

Long VIX under the Christmas tree? We have a few more boring weeks, but VIX seasonality is very strong from mid January. Can you afford to wait?

Source: Equity Clock

 

7 - Hedge fund leverage getting extreme

Many of the positioning indicators we look at are now at extreme levels. We are only showing one here - JPM prime brokerage data showing how net leverage continues to spike. with percentile numbers in the high 90's. This does of course matter for the VIX trade as well - a little less complacency leads to equity selling which leads to higher VIX. It's all inter-connected.

Source: JPM PI

OUST Ouster

 

SERV Serve Robotics

DJT Trump Media & Technology Group Corp

 

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IWM Will Soar Nearly 70% by the End of 2025

If you want big returns, I'm convinced you'll find them in small caps. When I make bold predictions, and many of you know that I do fairly often, it's usually supported by long-term perspective. Most everyone has a negative bias towards small caps right now, because they've underperformed so badly the past few years. But I use perspective on small caps just as I did in 2022 on the large caps. Let me use the S&P 500 as an example:

Do you remember how bullish sentiment was at the end of 2021? We had the most complacent readings EVER on the 253-day SMA of the equity only put call ratio. And we had an "overshoot" on the S&P 500 outside of the secular bull market channel. That left the likelihood of little upside and the potential of plenty of downside to test the "middle" channel level where most corrections and/or cyclical bear markets end. At MarketVision 2022 in January 2022, I discussed the very real possibility of a 20-25% cyclical bear market decline to last 3-6 months and this was a chart that supported my theory. There were other reasons as well, but I'm focused in this article on perspective and the benefits of having long-term perspective and not being overcome by short-term recency bias. We actually saw the cyclical bear market drop 28% and last 9 1/2 months. It wasn't a perfect call, but it was pretty darn solid.

Notice that those tests of the blue-dotted "middle" upslope line are excellent opportunities to jump in for what's likely to follow - a strong uptrend to return back to the upper channel line.

So how does the small cap IWM look right now:

The blue "percentage change" shows 52%, but this is measuring a 4-year period where price action simply follows the bottom of the slope. However, the maroon "percentage change" shows what happens if you increase at a much, more rapid pace from the blue-dotted "middle" upslope line to the upper solid blue upslope line, in this case rising 112% - more than twice the rate if you simply go along for the ride with the slope. I believe the IWM has just begun a very significant rise back towards its upper channel line. I won't be surprised if the IWM hits 400 in 2025, which would represent nearly a 70% return. This type of a move would be no different that what we've seen in the past on both of the above charts.

Again, to make these types of predictions, you have to be willing to ignore what's happened recently (check your recency biases at the door), and focus on what the long-term channel is telling you. Could I be wrong? Absolutely. But I firmly believe small caps will continue the leadership role we've seen of late, significantly outperforming the S&P 500 and NASDAQ 100.

 

The Coming Stock Market Correction: VIX Calls Or S&P 500 Puts?

The question has become central as spikes in the Cboe Volatility Index have grown increasingly ephemeral.

Consider what happened last week, when the gauge surged more than 2.3 points intraday on two instances as concern increased over the escalating conflict between Russia and Ukraine. By the close, the VIX was up less than 1 point.

More dramatically, the measure of expected stock swings climbed by a record during the Aug. 5 volatility shock before giving up almost all of its gain within a week. The front-month future rose far less that day.

With the market increasingly deeming bad news as an outlier tail risk, investors are left wondering how effective volatility hedges truly are — or the practical value of having them as monetizing any move nowadays requires very quick profit taking.

So-called vol-of-vol is typically very high during market stress, meaning that a spike in volatility can quickly turn into a collapse — which has also proved hard to profit from lately.

“VIX calls can be exceedingly challenging to monetize,” said Jeremy Wien, managing partner at Moo Point Capital Management for its equity-index volatility fund.

“Having said that, VIX has the ability to spike faster and more sharply than the equity markets fall, so VIX calls can be quite a useful hedge in certain scenarios.”

VIX calls could be better to protect against geopolitical events, while S&P 500 puts might be preferable to hedge against softening economic data, disappointing earnings or declines in stocks related to artificial intelligence, Wien added.

In a recent research note, Bank of America Corp. strategists including Matthew Welty said hedgers looking to pick VIX calls or S&P 500 puts need to to consider how reactive the gauge of swings is likely to be as equity slumps may not necessarily come with a spike in volatility. They noted the VIX options market built up a significant imbalance over 2023 and 2024 that may have not completely cleared out, and dealers may struggle to hedge during market-stress events, leading to a rise in VIX futures.

On Aug. 5, VIX call holders may have struggled to monetize their hedges given the speed of the market crash and subsequent volatility selloff. A Bank for International Settlements paper published shortly after highlighted that a blow-out of bid/offer spreads on out-of-the-money S&P 500 puts before regular trading hours inflated the VIX spot level. Since it’s calculated based on the midpoint of the bid/ask, that level can increase even without trades in S&P 500 options.

Anne Van Kuijk, the head of the S&P 500 and VIX options desk in Amsterdam at Optiver, noted that VIX calls can deliver significantly more convexity than S&P 500 puts in panic scenarios.

And inflows into leveraged short VIX exchange-traded funds have lowered the cost of VIX calls.

VIX and S&P 500 products serve different purposes, said Jitesh Kumar, a derivatives strategist at Societe Generale SA. With S&P 500 puts, investors buy options betting on an index level, while with VIX calls they keep the sensitivity irrespective of the level — if volatility doesn’t slump. Many market participants also hold VIX tail-risk hedges for regulatory purposes, serving them “quite well,” he added.

“Investors need to choose their hedges depending on their spot/vol view,” Kumar concluded.

 

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Today alone there were a handful of ODE call options that jumped well over 1,000%. The past 2 days have been insane.

The 300 calls traded as low as 11 cents just days ago and today traded over $28 before closing at $21.18. That's over 25,000% gain. Absolutely insane numbers.

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NKE Nike stock bounced off a pullback, above 2 moving averages, stochastics crossed, and RSI above 50

 

LRCX Lam Research stock looking more bullish by the day

 

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HL Hecla Mining stock is on support, wait for confirmation

 

DIOD Diodes Inc stock broke the down trend, starting to move higher

 

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The 10.00 Oct 18th call option has gone from a low 0f 5 cents to $11.60 in just 2 weeks.

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URA GX Uranium ETF is in the over bought zone, be careful of a potential pullback

 

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PDD Pdd Holdings Stock Jumped 13% Today, But Some Options Rocketed 100X

 

You could have purchased the 120 calls several days ago for less than 10 cents, today they traded as high as $12.00. Crazy returns when you know where when to look.