In This Article:
The market (^GSPC, ^IXIC, ^DJI) is currently showing signs of exhaustion as the CBOE Volatility Index (^VIX) remains elevated.
Jeff Jacobson, managing director and head of derivative strategy at 22V Research, joins Catalysts to explain how expensive puts might indicate the market could reach a tradable bottom.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
What does the VIX tell you and what does just the price action in general tell you about when we might start to see selling just getting too exhausted?
Yeah, I mean certainly the VIX is is one of them, but I would still point to the fact that it's a little bit up today, but you know, typically what I want to see and what I mentioned in my note is I want to see people just over paying for puts, basically. Uh, I still think that there was this fear of people missing the snapback rally and that was expressed in the fact that calls were, you know, what I would say expensive relative to puts as of last week and even really this week. Um, I think that would to me really signal the fact that people are just panicking and selling it, you know, at any cost just to get out, uh buying expensive puts. Uh I really want to see puts trade really expensive to calls. That to me would signal that we're potentially, you know, at a point where the market could put in some kind of tradeable bottom.
Jeff, when do you expect we'll see volatility sellers enter the market? It looks like the volatility sellers are the ones that are uh setting prices. And when I've seen the past volatility sellers enter the market, that's usually around the bottom.
Yeah, I mean, on the surface it looks attractive. You see the VIX at 37 or 40, you say, sure, that's a great level. Um, I think some of that is, you know, keep in mind we had the, the, you know, the first hit to the market in March, and I think that took a lot of the, you know, leverage and and exposure down. And I don't know if there's that same normal appetite. Like, for example, we had a similar move in August on the uh carry trade concerns. And you know, that was a very short lived, it was a three day opportunity, great opportunity to sell vol, um as you can see on the chart. I don't know if people are that brave in this environment just because of the uncertainty. I think people are trying to gauge, you know, and and map out how can I price this uh trade war and tariff concerns and I think it's a lot harder. And again, I think you have less risk appetite because of the move that the markets had in in early March.