VIX Graph March 26, 2010

The stock market was more volatile this week, and VIX stopped it's current decline.  Whether this is merely a pause in the current downtrend, or signal that the lows in VIX have been seen, is anyone's guess.

The bulls remain in control of this market, but the bears are not in hibernation.  I can hear them growling.  Maybe it's just that noise than keeps option buyers in the marketplace.  Those buyers support option prices, and IV does not tumble.

Perhaps I'm grasping at straws in an effort to understand what's happening with VIX.  As the future unravels, we will learn more.


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4 Responses to VIX Graph March 26, 2010

  1. Joe 03/28/2010 at 11:33 PM #

    Hi Mark,
    I posed a question a few blog posts back and am still thinking along the same lines. It was in relation to using kites on both sides as additional protection upon initiating an IC positions in a low vol enrironment. For the benefit of your readers and some feedback from yourself I would like to pose the following position scenario:
    In a low vol market adding a kite spread on both sides at the same time as initiating a 10 lot of ICs produces a position graph simmilar to that of Batman with his his wings up.
    I like the protection and potential profit this depicts, possible profit on upside or downside and if the market doesn’t move over time the ICs make money. So long as a trader is willing to take off the IC for a profit whilst taking off the kites at the same time, a very small profit could be realized.
    This seem very feasible and logical to me, how does it seem to you?

  2. Mark Wolfinger 03/29/2010 at 8:53 AM #

    Hi Joe,
    Feasible and logical. Yes. But it is still a personal decision.
    Most iron condor traders prefer not to own insurance. Those kites are not free, although getting them early at low IV makes them far less expensive.
    If your mindset is to own insurance, then I’m a big fan of doing as you suggest.
    For traders with the mindset that says: get insurance only when needed, I cannot say that’s a bad idea. It’s not.
    ‘Very small profit’ is not a good goal, considering risk – for iron condor traders. Nevertheless, kites reduce risk, and under those circumstances, settling for a smaller profit makes sense. The question becomes: How small is ‘very small’ and is is worth the time, effort, and risk to seek it?
    Regards

  3. Joe 03/29/2010 at 4:43 PM #

    Mark,
    This is what I’ve been considering. I figure the kites provide great protection if the ICs don’t behave yet they reduce the premium of an IC significantly, the risk is minimal but so is the profit. So if I took off both kites and a 10 lot of IC positions at the same time for say only $300 profit, it would’nt be enough for me. However, if I put on 10 times as many I would have approx $3000 profit which is more acceptable. thoughts?

  4. Mark Wolfinger 03/30/2010 at 12:07 AM #

    Joe,
    Danger.
    Full reply in the morning (3/30)