VIX Option Hedge

As the S&P 500 Index continues making new closing and intraday highs, signs of increasing volume in VIX options suggests growing hedging activity. This week's Market Review adds details to the regular VIX section along with a call spread suggestion and then a brief U.S. Dollar Index update.

S&P 500 Index (SPX) 4128.80 added 108.93 45.33 points or +2.71% making new closing and/or intraday highs every day. For the past three weeks, the gain totals 5.42%. Now above the top of the parallel channel trend lines from the November lows it appears to have come too far too fast. Should it pullback this week, the previous March 17 high at 3984 looks like a good support area followed by the 50-day Moving Average down at 3914.12.

Invesco QQQ Trust (QQQ337.11 gained 12.54 points or +3.86% last week making the three weeks total a whopping 7.61%. Now well above the 50-day Moving Average and back up near the February 16 high at 337.76 risks selling at a double top. As it has for the last three weeks, yield on the 10-Year Treasury Note could determine if it can continue higher or pullback. Last week the yield declined from 1.73% on Monday to end the week at 1.67%. On a pullback the area around the 50-day Moving Average at 321.57 looks like a solid support zone.

CBOE Volatility Index (VIX) 16.69 slid .64 points or -3.89% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, declined  .71 points or -5.26% ending the week at 12.79 % at another bullish 52- week low. Now well below the mean in the relevant range from June 5, 2020, at 19.70%, regression to the mean at 20.07% should be anticipated. The 52-week chart shows the current low along with the start of the relevant range used to compute the mean at the start of June last year.


VIX Futures Premium 

VIX futures premium on Friday at 15.73% ended in the middle of the green zone, compared to 20.76% on April 1. Front month April futures expire on April 21, with last trading day April 20. Time premium now declining fast.

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Disclaimer: is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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