Forward Note - 2024/12/08
Jingle Bells, Jingle Bells, VIX 12 all the way.
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Last week was so quiet that we might have sworn it was still Thanksgiving. The equity market reached new all-time highs—almost a given—and ended the week up just under 1% for the S&P 500, while the Nasdaq gained more than 3%. This provided a welcome end-of-year boost for the technology index, which had lagged since the rocky summer and spent much of the second quarter trailing other benchmarks.
Realized volatility over seven days came in at one of the year’s lowest readings, a minuscule 5.18% annualized. Traders appear to be in holiday mode already, celebrating what will likely go down as one of the best years on record despite U.S. elections, tensions in the Middle East, the spike to 65, recession fears, and an ever-growing list of concerns.
We can’t blame them. This calm period feels well deserved after the cold sweats we endured in the second half. Even if we can’t say markets were in full-blown panic after August’s spike, plenty of moments still felt uneasy and each time we put on a short-vol trade, we wondered, “Is this when I get hit by the bus?”.
So what a surprise to find ourselves back in a low-volatility regime. You didn’t need to watch too closely this week to spot the VIX hovering around 12, and you can see our regime chart lighting up with green points again.
We’re not saying there’s no risk, but the picture tells its own story. As 2024 winds down, the market doesn’t seem to expect anything dramatic in the weeks ahead, and honestly, you probably shouldn’t either.
Now, what about the last FOMC meeting of the year? Even Polymarket puts the odds at around 85% that Powell will hold to his September roadmap and cut one more time.
After the latest jobs report (yes, yes there was a NFP report, we swear!), there’s little reason to think otherwise. On Friday, the data showed 227,000 jobs added, with October’s figure revised up from 26k to 36k. The unemployment rate ticked up to 4.2%. Given that the Fed chairman has consistently focused on the dual mandate, it’s hard to picture any surprises at the December 18 press conference.
What to do in the meantime? We won’t lie—this isn’t our favorite season. Things slow down, trading opportunities thin out, and it can feel uninteresting. Still, it’s not as if nothing happens. For example, Roaring Kitty (yes, he’s still around stirring the pot) tweeted on Thursday, and GME jumped almost 15% at one point before it eventually pared some of those gains.
You didn’t need to be an exotic derivative pricing genius to spot what was happening. A bunch of last-minute, short-dated call buyers seemed to create a surge in demand on the call side, pushing implied volatility into slightly overpriced territory.
What else? The usually calm and predictable Korea gave us a bit of a scare Tuesday night when the President declared martial law, channeling some dark memories of 1980. EWY—the ETF tracking Korean equities—fell nearly 7% at one stage before news came out that Parliament was rejecting those orders. The President hasn’t stepped down, but at least the dust seems to have settled for now.
This might offer an early look at the flavor of 2025. If the economy was the major risk factor for 2024, next year could be all about politics. France (not that it matters much, but it still does a bit) is stuck in political gridlock. Romania just announced new elections, citing Russian interference. Over in Georgia, the Dream party is grappling with unrest after saying it would withdraw its EU candidacy. And Bashar al-Assad’s regime has now been toppled.
None of this is likely to move the markets on Monday. Still, major political shifts often challenge the status quo, sometimes with consequences that are tough to see ahead of time. Think back to October 2010 when Tunisia rose against Ben Ali, reshaping the region, or when Greece, already buried under debt, decided extremists were a good choice to run the show. (Yes, France and Germany, we’re looking at you.)
But that’s a story for another time. If you’re craving a bit of action, keep an eye on Bitcoin. Beyond that, the calendar looks sparse, and VIX at 12 tells you everything you need to know.
In other news
Bitcoin finally crossed the 100k mark and stands among the best-performing assets of 2024. We generally avoid making strict directional predictions, but here’s a reminder: today’s all-time high might turn into tomorrow’s low if you stretch your timeline far enough. Those who jumped in at 1k and sold at 19k once believed they’d found the ultimate peak, never to be surpassed. How far off was that?
The same perspective applies to gold, Tesla, Nvidia, and countless other assets. I’ve used a long paragraph to say something simple yet painfully tough for our emotional minds to accept: comparing today’s price to yesterday’s is almost meaningless. What’s done is done, and it won’t dictate how the market revalues assets in the coming years.
Putting it another way: 100k feels hefty now, but if it hits 500k, today’s level will seem cheap in hindsight. And who’s to say it can’t reach that point?
One very important side note—this isn’t a recommendation to buy Bitcoin, you degenerates. Talk to a certified financial advisor, someone who can offer advice a lot better than mine.
Thank you for reading all the way through. This week, our recommended reads are a bit skewed.
If you missed it, last week, we shared a six-month performance review of our trades with the Discord community. It’s a good example of how using different edges can guide you through shifting and sometimes chaotic market environments.
We also detailed our approach to skew trading. That may sound sensationalist at first, but as mentioned in the article, a solid understanding of supply and demand is all you need.
Thank you for supporting this newsletter. Enjoy your upcoming week, and here’s to some relaxed (maybe sleepy?) trading ahead.
Ksander
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Disclaimer: The information provided is solely informational and should not be considered financial advice. Before selling straddles, be aware that you risk the total loss of your investment. Our services might not be appropriate for every investor. We strongly recommend consulting with an independent financial advisor if you're uncertain about an investment's suitability.