Making sense of the action in the VIX
The CBOE Volatility Index, also known as the VIX, helps traders gauge the level of expected volatility in the stock market. The VIX has spiked since the announcement of President Trump's tariff plans. In the video above, Prosper Trading Academy CEO Scott Bauer helps investors make sense of the action in the closely watched index.
To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime here.
The market has seen outside swings to both the upside and downside due to tariff whiplash. The volatility index soared last week to the highest since early 2020. That's according to Bloomberg, as investors continue to grapple with uncertainty. Where does this leave the options market? Prosper Trading Academy CEO Scott Bauer joins us now to discuss in the Options Pit sponsored by Tastytrade. Scott, it's good to see you so uh.
You too, Josh.
May I start here, Scott? Listen, um lots of volatility in this market. What kind of opportunities do you think, Scott, that that presents to investors, especially maybe Scott investors who are who are listening right now and and they're new to options?
Sure. So if you're following the VIX and I'm standing here in the VIX pit at the CBOE. If you're following the VIX, something to remember is if you see a VIX more normalized long term around 16, that's equivalent to about a 1% move in daily moving the S&Ps. 32, which is pretty much where we're at right now, that's a 2% daily move. 48, 3%, so on and so forth. When we see this elevated level 30 or above, it typically does not stay here very long. In fact, if you look at historically going back to when the VIX started back in in the mid to early 90s here, uh above 30 is, you know, maybe it stays for a few days, maybe we see a week. And then we normalize here. In fact, over the history of the VIX, anytime it's really soared and it's gotten above 50, which is really kind of a capitulation panic level for most investors here. That year, the returns and moving forward have all been positive. So is this time different? You guys were just talking, maybe this time is different. You know, when we go through these cycles, we always say that, whether it was COVID, whether it was, you know, the Y2K issues, whether it was a great financial crisis. Is this time different? Maybe. It's it you know, I'm not an investment advisor, I'm a trader. So it's easy for me to just say, hang on, hold on in there. The opportunity really is though, quite frankly, to sell some volatility.
Kind of a broader question, Scott, too, just why I have you. I mean, you have been, listen, Scott, you've been thinking about, studying, and trading these markets for a long time. Especially in a day like this, I think a lot of people, some people at least, they, you know, investors get nervous when they see a day like this. Just broader, Scott, I just it's really what you make of these markets.
Well, it it's difficult. It's really difficult to be honest because we really haven't been through a time before, regardless of the periods of time where we've seen the VIX spike, where we know the markets can change in a heartbeat, literally in a second on a tweet, on a you know, a news clipping. We have not been through that before. So I think this time going through here, that uncertainty is heightening that VIX level, is heightening, you know, some some of the nervousness that people are feeling out there. And the fact that we keep seeing changes almost on a daily basis coming out of the administration is also a very unsettling feeling. This too shall pass, but is it going to be a matter of days, weeks, months? Is it going to continue through the end of the year? I can't tell you that. I know that the opportunities to trade though are excellent. The markets in the VIX, the markets in the S&P, they're deep, they're robust, they're liquid. So as a trader, it's great. If you're a longer term investor, you probably just got to look historically and say, all right, I'm along for the ride.
And Scott, we were talking earlier about semiconductors and the different opportunities there. I know you have some ideas around TSM. Can you give us some trade color on that and what you see in the options market?
Absolutely. You know, it's really tough just because of the the constant news cycle. If it weren't for what's going on right now, I have no qualms that TSM would be a $200 plus stock. But we do have, you know, the current news cycle to contend with. Earnings tomorrow morning, I want to be long this stock even in the face of everything that's going on. So what I am doing is I am selling tomorrow's, excuse me, next week's expiring 150, 140 put spread. $10 wide put spread. Could have done that for about three, three and a half dollars today, which was a lot of premium. I normally would not sell a put spread that wide, but looking at this stock, I want to be long this stock 146, 147 area if it were to come down there. So I don't mind selling this put spread, getting the extensive premium, and then seeing what happens. Again, if I had a longer time horizon on this, if it was more of an investment than a trade, I would probably look at it a little bit differently.
Scott, great to see you and have you on the show today. Thanks for joining us.
Thanks so much.
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