Idiosyncratic

Our Personal Perceptions

The CBOE Vix traded between 8.56 and 50.3 this year

A daily chart of the VXX 

The failure to support 38.59:

• I was buying calls on the deeper dips near the mid line
• I bought puts in February several times each of which paid off nicely
• I could not justify buying puts in April except if I did I would have made out well

This is a self-decaying asset, and for the most part, the only way to make money on it is in an intense corrective sequence in the S&P 500 and to not hold this name for a position for longer than a specified number of trading days.

Options provided a great solution to this problem.

The dashed mid-line here (38.59) was the line in the sand for me personally with how far I thought they would allow the VXX to drop before bringing it back to the 1st quarter highs.  

So for us the strategies we employed paid off nicely for both bullish and bearish directions, but as you can see by the directional change-over in April it would have been more slanted to the bears winning and the put options (long) would have been paying well.

For my method of analysis price is more important than time, but lets take a look at how long in the tooth the correction has lasted.  If you combine the descent from April to mid april and then April 26th to now you would have 12 and 34 days of decline and that spells trouble for the bears of VXX.  (on a time basis)

Although I am not ruling out a possibility of a return to the 25-27 range if the market hits new all time highs again, I am just saying that my personal perceptions were not calibrated to the reality of 34 was where the deep demand (or S&P 500 selling pressure) in VXX would be located. 

The notes on the chart for this past week include 1st test at 33.54 and the second test which happened on Friday - that is to say that if 34 is the strongest point of support for VXX that will be proven this next trading week.  

This second chart is the purest form of the Vix, and today its showing (by my personal notes) it was able to dip into the "area of extreme complacency" between 14 and 13.22

And because we have our eyes on so many markets it took me this long to revisit the Vix index, as we believe its time again to start ramping higher; when this happened last in the earlier part of this year it did not end well for the S&P 500 bulls.  In this current position it has acted as a launching pad to move us into the amazing highs of 50.3.  Will history repeat? Time will tell....