“A lot of folks [are] pushing these VIX 1×2 Put Spreads trading in the market, looking to put this on as their ‘short vol’ trade expression to capture a [year-end] melt-up. Now, we see 3-month realized as the new trigger input as it is the max of the two lookback windows,” McElligott remarked Friday, noting that “this has meant a recent blast of BUYING per the VC model over five of the past six sessions… helping stabilize [the] market against headline shock potential.”
“This is why flattening expressions need to be looked at as hedges,” McElligott said. “Because everybody is set-up for the bear-steepening / pro-cyclical fiscal stimulus + deficit spend + infrastructure + vaccine RECOVERY trade.”