I haven’t had significant VIX-related exposure since closing a large diagonal SVXY call spread back in June. This market has remained very calm resulting in VIX index printing seven daily closes in a row below 10 pushing short vol ETPs to new record highs.
I was expecting vol to be subdued but the VIX futures curve is looking quite dangerous for everyone who is shorting vol at these levels. Obviously, there is nothing out there to preclude further moves higher for short vol ETPs, however at this particular juncture I’d rather be neutral and observe instead of actively trading. I believe SVXY has potential to run as high as $100 by early to mid September if VIX index continues to settle around 10 for another six-seven weeks. Nonetheless, any minor market pullback could have devastating effects on short vol ETPs and that is why I’m not chasing SVXY higher given the current VIX futures curve structure.
With vol at record lows I still believe it makes sense to remain long certain individual securities via call options. My portfolio composition hasn’t changed much since the latest update and results have been mostly neutral to positive.
Most indicators I follow are looking healthy further strengthening the bull case for equities in the near-term. Overall market hasn’t had a 5% pullback for 269 days, which is fourth-longest in history. At some point there will inevitably be a selloff (of unknown degree and unknown duration) but it doesn’t look imminent based on what I’m seeing at this time.
My portfolio continues to grind higher on a weekly basis. I have two clear laggards at this time, which is GE and OCUL and several winners such as DHI, IBKR, TWTR, and TLLP. I have trimmed TWTR position several weeks ago and sold 2/3 of TLLP around $1.90.
I have several other stocks on my radar but I’ve been patient to keep some dry powder in case correction/pullback does take place unexpectedly.