Why this time is different and VIX is here to stay

by originalmuggins

Historically, massive VIX spikes are not sustained. Usually there is a big event, a massive market fall out, and then volatility while the market tries to figure out the new equilibrium. Sometimes there is an actual economic downturn that can lead to a recession.

So usually, long options in a high VIX environment is a sucker’s game because you lose that sweet premium even if you pick the right direction. And sure, there are some bumpy times along the road as companies announce how they are affected by the big event.

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But past VIX spikes have followed single, relatively contained events. Lehman Brothers’ bankruptcy happened at one point in time. The market fall out lasted a long time, but all of the following events could theoretically be predicted by a smart enough person.

This is different. We have no idea whether coronavirus will be a minor hassle that resolves itself in the next few weeks, or an ongoing nightmare that just picks up momentum. Every day we get a new clue – more cases, less cases, trials, deaths, more countries, etc. The potential economic impact is constantly evolving and we don’t know how long that will last.

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I don’t think we can use past charts to predict what happens here. Nobody knows. But I don’t think long options are a bad play right now, despite their cost. I actually think that’s where the real money is. Get the options and wait for the fireworks. Or, if you’re in calls, the lack thereof.

Tl;dr: keep doing what you’re doing, retards.


Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.