In the chat room Monday afternoon I signaled a short in this vehicle, posting as follows at 2:06 p.m.: “On the hourly chart, [the CBOE cash VIX] became a ‘mechanical’ short minutes ago at 15.65, stop 16.00, with a 14.61 price objective.” VIX subsequently fell to an intraday low at 14.82, coming within 19 cents of the target. Interest in the room had come primarily from bulls keen on bottom-fishing. For sure, volatility has dried up since the August plunge, encouraging traders to think that the broad averages are overdue for an explosive move. The payoff could be huge for getting the timing right; indeed, this vehicle spiked in August from 15.25 to 53.29 in just three days. For volatility bulls, here is how I left things in the chat room: “I’d be a buyer myself at 14.61. I’ve never dealt with European-expiration options, but the monthly calls expiring Nov 19 at the 15 strike — currently trading for around 2.25 — would look tempting for bottom-fishing at 1.65. This would presumably correspond to the 14.61 downside target just noted. The 1.65 price comes from a Hidden Pivot ABC pattern. The actual target is 1.62. Unlike the underlying index, p2=2.04 has not yet been exceeded to the downside. Spec bids at 2.05 therefore warranted as a day-trade against the trend, but I’d tie it to a 1.95 stop-loss.” Please note that although the options trade off the futures price rather than the cash index, this wouldn’t affect the call-buying strategy detailed above. ________ UPDATE (5:42 p.m.): The intraday low missed my 14.61 target by only a dime but the calls stayed well out of reach, in part because they picked up volatility when VIX swooned on the opening. Cancel the bid for now. We can try again if sellers drive this vehicle down to 12.53, the ‘secondary’ p2 Hidden Pivot of the same pattern used to identify 14.61. For your further guidance, I’ve included an analysis for VIX futures in today’s list of touts.
