This is a rebroadcast of OICs webinar panel. In this deep dive discussion, Frank Fahey (representing...
VIX-VX Spread Is a Gapping Hole
03/20/2015 8:00 am EST
Option trader Mark Sebastian, of OptionPit.com, highlights the fact that every crowded trade got hit as a result of the Fed’s announcement on Wednesday except the VIX Futures. He also thinks the spread between VIX and VX is now super wide and points toward some distrust of Wednesday's rally.
Wednesday, the Fed announced that they are dropping the word patient from their statement…at the same time they announced they are patient. The net result was a pop in both short- and long-term bonds and a strong move in long-term interest rates. In addition, the Fed Fund Futures are now picking September or October for a rate hike (that might not even come then). The net result was that every crowded trade got smoked except one, the VIX Futures. Take a look at the curve:
Click to Enlarge
Yes, the April future took it in the chin, but the spread between VIX and VX is now about 2.5 points, that is super wide and points toward some distrust of Wednesday's rally. Another reason that the spread might be there: short futures are a crowded trade in VX Futures. This means the slow roll down might be painful like the March cycle.
When you hear about a trade too much on CNBC, its time to unwind that trade (take a look at USD/EUR)
By Mark Sebastian, Blogger and Contributor, OptionPit.com
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