Good Morning! Yesterday I made a comment that was called out by a reader, and I want to clarify... $VVIX has been this low in most of 2018 and prior, that's true. However, back then $VIX was at 10, and had a hard time even getting to 16... seems like forever ago, right?
So the scope of the difference between spot vol and wing vol is a lot more compelling now than it was, even though the static $VVIX was at these levels. It seems like the short-term inverse correlation has been with $VVIX and $SPX, not $VIX. When dealing with large neg. vanna...
it doesnt take much movement in VIX to create that inverse movement in $SPX. $SPX deltas are extremely sensitive to IV right now, so long vol is the right move to make. When randomly hunting through #volland, there seems to be a disconnect between equities and the indices.
Some equities still have that bullish dealer posture, short puts and long calls. The indices show the reverse. If earnings are not good, and there is NO sign they will be as positive as projected, they can cause cascading downside as their dealer positioning reverses to bearish.
We are in a tough market, it is in transition thanks to misguided Fed action. I have stated before that the cure to all of this is increasing labor supply and the quickest way to do that is increased immigration. We are now very close to the point of no return...
Where demand destruction is so great that the empty jobs disappear, and the economy adjusts down instead of filling the gaps. The debates I'm reading is "soft landing or recession". My position is now... we are headed for an economic downturn larger than the Depression.
Inflation was transitory until it wasn't. JPow is beginning to recognize we are headed for recession, but continued policy missteps will create worse than what he is imagining. I get the feeling the bottom is a lot further than we think.
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