I find what’s going on in the volatility space right now really interesting. I’ve been writing in my weekly notes about the Volatility Risk Trigger (VRT) Model and have gotten several questions emailed to me asking questions about the VIX. So, with that, I’m writing the below note to look at two specific developments that I think are the most important for the VIX over the next two to three weeks. As a reminder, I do not make trade recommendations, and my focus is not on the ultra-short-term, intraday changes in the market. I don’t pretend to know what will cause volatility to spike or to stay calm going forward, I simply focus on the data available. As of today, realized volatility has come down to major lows and there seems to be very little interest from traders in purchasing hedges, based on the work of Nomura and the analysis I’ve done on the COT data. That combined with what I’ve written below leads me to believe we are at a time where risk is elevated, and the door is open for volatility to make some moves.
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