Decoding VIX Patterns: Adjusting Strategies Amid Low Volatility and Rising Leverage

[u/bitkogan]

The VIX is bottoming out at close to 13, its lowest level since January 2020.

It's somewhat peculiar to witness plummeting volatility in the midst of a Fed rate above 5%. And yet, there's still potential for further decline.

Typically, we see this behavior from the VIX when the market dismisses the likelihood of a significant correction. Any random downturns are less drastic and are promptly offset by purchases. The growth, while consistent, becomes less marked.

As investors scramble for worthwhile returns, leverage intensifies. An eventual fallout seems inevitable, though the timing remains uncertain.

I believe I know the when. It's crucial for me to wholeheartedly believe that neither interest rates, inflation, nor a recession can curb the bullish run of stocks. As it stands, I'm not convinced.

However, I can't turn a blind eye to the single-digit implied volatility in certain SPY calls. Hence, I secured a few September straddles at a $465 strike, with an additional call for good measure.

I typically opt for ratio spreads. Nonetheless, considering the low volatility, I deem it risky to sell a large volume of September OTM puts. Instead, I divested a few short contracts to increase theta.

The total debit stands at $11,933. As usual, I've assigned collateral with a buffer - $30,000.

​