And So It Begins

Don’t you hate it when someone you know is proven to be right about something and then keeps on rubbing it in by saying ‘I told ya so’? Well, I hate to be that guy today (actually I don’t) but heck… I TOLD YA SO! What am I droning on about again? Implied volatility of course – what did you think?

So let the record show that I have been warning you about a marked uptick in IV for several weeks now. And after a bit of a warm up period it finally happened over the past few trading sessions.

“But Mole – that’s just a spike. It’ll settle down again in a week or two.”

Yup, that may indeed be the case. But what many do not grasp about volatility and IV in particular is that they come in waves.

In other words, a sudden rise in volatility usually begets more volatility.

VVIX basically measured realized (historical) volatility in implied volatility. It’s an acquired taste just like asparagus but it’s extremely valuable when it comes to plotting swings in market sentiment.

And yes, if you look at early August for example you’ll see a similar spike that then settled down a week or two later.

Which then was followed by an EVEN BIGGER spike (in both the VVIX and the VIX).

Maybe this time is different (cough cough) but just in case I hope you subs paid attention and loaded up on a bit of downside protection going into January and February.

Because remember my favorite IV chart that I’ve been pimping here on countless occasions:

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  • Mike
  • last year

About the Author

Hey there, I am one of the founding members of Red Pill Quants. I used to work as a systems engineer in Silicon Valley until I left the industry in 2008 to become a full time quant trader. It's been fun ever since.