I love all your write ups and this was the series that got me subscribed in the first place. By any chance are you planning on revisiting the topic of volatility with the current economic climate?
Great work. Found it really interesting from when I read the initial theory in 2021. I've taken a very different road but arrive at a similar perspective we might be about to see something a lot of people will find very surprising.
Love your writing and insights. I tend to agree with you on most everything but can't put it into words the way you can. Thanks for making us a bit smarter each day - really appreciate it.
I love your writing and loved your thesis, but never bought it 100%. I think a more generalized thesis is more appropriate: "Volatility goes up with counter-trend moves" (instead of "volatility goes up with down-moves")
Since markets go up most of the time, your narrower thesis is correct most of the time, as bull market sell-offs bring up high volatility. In secular bear markets, however, this does not hold, and in fact you can see sharp increases in volatility during bear market rallies.
I like a hydraulic analogy: a bull market is like pumping water up a tower: as long as the pump is working the water level rises. However sometimes you get a momentary power outage, the pump goes OFF and you see violent spills downward, until power is restored.
In a bear market you don’t have this pump action, you don’t have the accumulated pressure (i.e. unrealized paper profits) that can violently spill down when the pump seizes (i.e. market panic attack).
The market is steadily bidding vol, not panic bidding it. Panic bids are what causes VIX and VVIX to have a strong correlation to one another(See: Aug 2015, Jan 2018). I would incline you to look at how VVIX performed alongside VIX during Feb 2016 and Dec 2018's sell offs. When the sell off is orderly and everyone expects it(This current sell off) then there is no dramatic spike in VIX and VVIX. Eventually the seeds for the next major vol event are being planted when everyone refuses to bid vol again.
Great write up!
I love all your write ups and this was the series that got me subscribed in the first place. By any chance are you planning on revisiting the topic of volatility with the current economic climate?
A naïve question, does VVIX affect option pricing for products such as UVXY, VIXL etc.?
Great work. Found it really interesting from when I read the initial theory in 2021. I've taken a very different road but arrive at a similar perspective we might be about to see something a lot of people will find very surprising.
Love your writing and insights. I tend to agree with you on most everything but can't put it into words the way you can. Thanks for making us a bit smarter each day - really appreciate it.
I love your writing and loved your thesis, but never bought it 100%. I think a more generalized thesis is more appropriate: "Volatility goes up with counter-trend moves" (instead of "volatility goes up with down-moves")
Since markets go up most of the time, your narrower thesis is correct most of the time, as bull market sell-offs bring up high volatility. In secular bear markets, however, this does not hold, and in fact you can see sharp increases in volatility during bear market rallies.
I like a hydraulic analogy: a bull market is like pumping water up a tower: as long as the pump is working the water level rises. However sometimes you get a momentary power outage, the pump goes OFF and you see violent spills downward, until power is restored.
In a bear market you don’t have this pump action, you don’t have the accumulated pressure (i.e. unrealized paper profits) that can violently spill down when the pump seizes (i.e. market panic attack).
Great piece. Random question, but besides TradingView, are there other providers you use for your charts?
The market is steadily bidding vol, not panic bidding it. Panic bids are what causes VIX and VVIX to have a strong correlation to one another(See: Aug 2015, Jan 2018). I would incline you to look at how VVIX performed alongside VIX during Feb 2016 and Dec 2018's sell offs. When the sell off is orderly and everyone expects it(This current sell off) then there is no dramatic spike in VIX and VVIX. Eventually the seeds for the next major vol event are being planted when everyone refuses to bid vol again.