Historical Volatility Has Tripled in Two Weeks

VIX Traffic Light

Yesterday afternoon, the market bounced back. And, like clockwork, the VIX spent the day dropping lower and lower.

Remember, that’s how the order of things is supposed to be. The S&P goes up, the VIX goes down.

If the VIX was rising with the S&P, well, then we’d be in trouble. A move like that would signal that a top was coming.

But for now, we’re smooth sailing. And as expected, my VIX light has turned red – meaning now might be a good time to consider buying calls or call spreads on the S&P 500 ETF (NYSEARCA:SPY).

This is also great news for our UVXY puts, opened during Tuesday’s live event – catch a replay right here.

When it’s time to pocket an asymmetrical gain on this trade, I’ll send an email straight to your inbox. Want to be sure you don’t miss it? Then click here to sign up for text alerts – that way, you’ll be notified of all trade updates instantly.

But I’m not done talking about volatility today – because I just noticed something that I find really interesting…

Behind Historical Volatility

Since Friday, the market has been struggling to find its footing.

Two days down, followed by two days up – and despite the red VIX light today, we’re seeing a notable increase in historical vol.

Essentially, historical volatility, or HV for short, is a measure of the market’s returns over a given period of time. Let’s take the S&P’s 10-day volatility.

On July 7, 10-day HV was five. Now, it’s around 15 – a 200% increase in just over two weeks.

And now, we’re heading into a monster week of earnings season. We’re seeing companies like Microsoft, Apple, Google, and Amazon report.

I’m interested to see how these reports further affect realized volatility. It could either dampen or increase the vol… we just have to wait and see.

But remember – my traffic light indicator is based on the VIX, not realized volatility. While HV has tripled in less than a month, the VIX is only up about 6% higher than it was on the first trading day of July – effectively narrowing the “VIX premium” between this forward-looking indicator and realized volatility.

Today’s Impact Money Trade

Today’s Impact Money comes courtesy of “meme stock” AMC Entertainment (NYSE:AMC).

The oft-volatile stock has traded in about a $14 range already this week, and after peaking around $45 yesterday, was last seen around $38.03, down more than 6.5% on the day.

Click to Enlarge

It looks like one institutional trader is either betting on or hedging against more AMC downside south of $40, too – in the short term, at least.

Among the top equity option trades so far today was a sweep of 4,000 AMC August $40-strike puts, which appear to have been bought to open.

The puts will gain intrinsic value the deeper AMC shares slide beneath the $40 level before options expiration, but considering the trader paid $8.35 apiece for each option, they’d need AMC to sink closer to $30 before recouping that investment.

I’ll continue to keep an eye on AMC, which has been both a retail- and institutional-level darling in 2021, giving us the two-factor authentication we’re seeking in Profit Takeover.

Mark’s Watchlist

1. Intel Corp. (Nasdaq:INTC)Today, INTC reports earnings – and expectations are high for the tech company. In fact, they could take the stock back towards its high. INTC is about 18% off of its 52-week high right now, and I’m watching it to see where today’s report takes the stock.

2. Ford Motor Co. (NYSE:F)We closed our position in F this week – but I’m still bullish on this company long-term, especially considering its spot in the EV race. I’m interested in finding another opportunity to jump on F and make up for what we lost this week.

3. Advanced Micro Devices Inc. (Nasdaq:AMD)AMD reports earnings next week – along with a slew of other big tech companies. It’s going to be a big week, but I’ve got a special eye on AMD, which hit a high in early July that I see it reaching again in the coming weeks.

Tomorrow, I’m answering reader questions with another edition of Ask Me Anything.

Send in your questions right here, and you might just find your name in tomorrow’s email!

Until then,

Mark Sebastian

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