Of course they are just guessing like any body else…LOL
The SPX broke 2064 overnight which was the latest mini-support level of the alst 2 days. We’re in a vacuum here down to the 2040 level where the Nov-Dec lower highs support line sits. Underneath that is the 2020 level where the 100MA and 200MA sit.
The goal here is to go long volatility as the VIX will go to 25 or 30 or more as the SPX goes from 2060 to 2040 and ideally to the 2020 level.
Somewhere after the open, I will enter in a “Long VXX” trade at 50% of allocation. This trade should be executed in a margin account only because I may close the trade intraday at any time if the trade action goes against the trade or the VIX is seeming to peak (or the VX1 future stops responding to the VIX spiking). If you are using a 401(k), I recommend sitting this one out.
We are just entering negative contango here for a second time in a week (not a good sign for SPX bulls). VDelta is very negative. VCO and VTRO are also negative. VCO in particular is now negative for 4th straight day, a very ominous development for the SPX with a 100% volatility spike track record.
This is a good spot to go Long VXX even though the SmartVXX algo is not yet ready to pounce. The SmartVXX algo needs Contango and Roll Yield to get significantly negative (ie the Volatility Curve is heavily inverted). As such there is still risk of reversal (ie volatility reversing and starting to go down) here and for that I will have a pretty tight stop here at 5%. The worst loss should be 5% of 50% or about 2.5% of the portfolio. The target gain on this trade is anywhere from 10% to 25% over the next week. For those that are more adventurous, you can go with UVXY here to capture even more of the VIX pop. We could end up with a spike to VIX of 40 here. The Brexit will be the excuse, but the FED’s fumble yesterday will most likely be the real reason.
Options Bistro 