…..About That Overbought VIX

• Posted by Adam Warner
• on October 28th, 2009

…..It’s even more overbought here. This has not happened often during the 2009 rally, so it’s a very key moment imho.

If we fail here, well then I will seriously reconsider my basic trading plan, which for the most part has involved legging into put and put spread sales into the occasional dips. If nothing else, it likely means a longer period of weakness than the incredibly brief and shallow selloffs we’ve seen.

Of course if in fact we get ugly and the VIX flies, we will inevitably hear about the prescience of VIX call buyers, like the one who lapped up some Jan OTM’s on the “cheap” the other day. Don’t get carried away by that sort of thing, there have been size OTM call buyers on and off there since July, if one of them actually caught it right, good for him. But don’t go following the next guy into these, it took many poor purchases before some might actually work. And keep in mind that it’s very possible it was a trading desk buying these all along to offset general Variance risk.

 

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