VIX Expiration Approaches: What’s Next?
OpEx week has a bullish reputation, but it also has a reputation for being difficult to trade intraday, and today was likely frustrating for many. We saw gamma (GEX) shift in the morning as indices reached their upper dealer cluster zones, and by mid-morning, we reversed sharply lower and the VIX took off. We discuss what happened today (including the ASML ‘oopsie” earnings leak) and some thoughts about the remaining week on tonight’s YouTube video, which you can find by clicking this link.
Not only did GEX give us some clues this morning, but the VIX also helped, giving us a several minute head start on the big VIX spike as we saw price meeting the lower 4-hour Keltner channel and regaining the Hull Moving Average. Once we passed 19.72, we saw the VIX almost reach 21, a fairly sizable move intraday for volatility.
The VIX closed just above the middle Keltner channel at 20.64, but the VIX is below the Hull, which generally leads me to be interested in selling rallies in volatility. The pattern itself can potentially be interpreted as bullish consolidation for the VIX, and we will respect the seasonality odds as well, meaning the VIX may only be getting warmed up for a finale over the next 2-3 weeks.
As for VIX expiration in the morning, we have the largest negative GEX cluster at 21 and the largest positive cluster at 22, so seeing a temporary VIX spike to the top Keltner channel at 21.75 would fit perfectly with causing max pain for all of those VIX shorts (whose options would expire worthless) and also just shy of the VIX longs at 22. I can hear the “POOF” now as option premium evaporates. At least that scenario is one of several, and perhaps the one that I like the most (as well as the market makers).
VIX 3D GEX: www.geeksoffinance.com
On a short-term basis, and with OpEx Friday, it’s possible the VIX is setting a mid-week high before declining into the end of the week, giving the market a chance to rebound from here. SPX declined right to the Hull, which it has been above since October 8, so my tendency is to consider longs as long as GEX is positive and price is holding above that light pinkish-purple (ok what color is that?!) line. The Keltner channels continue rising, with 5876 now the upper Keltner. Remember we recently pointed out the big 5900 GEX level that represented a shift higher? It’s still there on our GEX levels chart.
SPX GEX dropped a lot from the 2B mark, but it’s still positive (though in neutral territory). Certainly not a signal to go all-in short just yet. A lot of the negative GEX (300M+) will disappear in the A.M. with today’s expiration, too.
SPX Historical GEX: www.geeksoffinance.com
As usual, SMH was dramatic, dropping considerably intraday and almost reaching the middle Keltner channel. The chart still looks bullish as well, though I notice the lower Keltner channel beginning to turn lower. My interpretation of the chart shifting slightly this way is that it’s at least worth watching to see if the broader trend in SMH will change to a “sell the rip” sort of environment. It’s not a slam-dunk, but it might be an early warning sign.
Our SMH GEX Levels chart shows a big GEX cluster and accompanying intraday volume at 240. Given that 240 and a little lower represents a lower Dealer Cluster Zone, I will watch for a tag of that box as a potential area to play the long side. It’s not as common to see this sort of volatility during OpEx week, so let’s try to enjoy the rollercoaster!
SMH GEX Levels: www.geeksoffinance.com
Tomorrow may be a pivotal moment this week as we see VIX hedges roll off, and we approach NFLX earnings on Thursday, so we hope you’ll join us in Discord for the real-time insights we’ll share and other subscribers will share throughout the day!
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