Is the New 10 for VIX 14? Or Maybe 15?

01/04/2016 8:00 am EST


Andrew Giovinazzi

Chief Options Strategist,

In trying to figure out what next year is going to be like in terms of volatility and the VIX, Andrew Giovinazzi, of, shares some general observations about 2015 and points out why he feels index butterflies and iron condors will start to look good again.

As 2015 draws to a close on low volume and kind of ugly action, I try to figure out what the next year is going to be like in terms of volatility and the VIX.  Some general observations from this year:

VIX as of last Wednesday is up a point with stocks around the same place from last year.

We had another flash crash in August for no real reason.

QE is over for the first time since 2009 as rates are going up and we got zilch for stock returns in the SPX.

Bond yields are low and stocks are at relative highs.

Oil prices are still the story one year later, and with it, one trillion in high yield bonds and credit market worries.

High yield bond indexes are at lows.

None of this paints a good picture for stocks although we have seen worse.  The big story I think is with no QE there was no equity rally this year. The big 2-3% QE fuel rallies, and with it, the vicious volatility crushes seem to be a thing of the past.  I thought there would be more of a vol. crush after the Fed raised rates and we did not really get one.  A small retreat in VIX but nothing sustained.  There will be more of that.

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The Lesson

Without some new steadying influence index volatility will have a hard time getting to those very low numbers. 10 VIX seems a long way away at this point.  If you sell volatility, be happy when VIX hits 14.

The Trade

Index Butterflies and Iron Condors will start to look good again since the rip-your-face-off QE rallies are going to be muted. The higher IV will generate better contracts to sell.

By Andrew Giovinazzi, Chief Options Strategist,

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