Hello, everybody. JD here with your Rational Trader market analysis daily.
In today’s video, I’m going to be talking about the arbitrage in the volatility market — specifically the short exchange-traded fund, SVXY, relative to the actual volatility index, the VIX.
We have an active trade working right now in SVXY, and I’m really excited about the trade.
Volatility Arbitrage Isn’t Flashy — But It Works
Let’s get into the details.
I put this trade on Friday morning, right at the open. At that time, volatility was trading around 16.20 — and I entered SVXY at $42.65.
Today, we closed at about $42.69. So it’s moved slightly higher.
But here’s the weird part: volatility actually rose today — to 16.64.
Normally, if the VIX is rising, SVXY should fall — because SVXY is a short-volatility ETF. It benefits when the VIX goes down.
But right now, that’s not what’s happening. And that’s the core of the arbitrage.
When Price Doesn’t Match the Math
I call this kind of situation a market dislocation — when price action resists what should be happening based on fundamentals or historical behavior.
What it tells me is: this isn’t over. The trade is working… slowly.
It’s not the most exciting thing to watch. But this is how short-volatility arbitrage resolves — in deliberate steps.
Still Targeting $50
My target remains $50 on SVXY. That would represent about a 20% move from my entry.
And I think that’s a very reasonable expectation in July.
This is a slow-burning trade, but it’s moving in the right direction. The market is starting to unwind this emotional, overbought fear setup.
And I want to be in position when that reversion happens.
What Happens After That?
Once we hit that $50 level — or get close — I’ll close the trade.
At that point, I’ll likely pivot to long volatility setups, maybe around mid-August, when I expect fear and uncertainty to pick up again.
This is just how markets breathe — and I’m just adjusting my posture depending on how they’re behaving.
Quick Note on STZ
Last thing before I let you go…
The STZ earnings trade we talked about this week is coming to a close.
If you wanted to, you could have closed it today for 10 cents. That’s after collecting $1.10 on the trade.
So a near-full profit outcome on both sides of the mean reversion strangle — just how we planned it.
I’ll walk through that one in more detail on Monday, after the July 4th holiday.
That’s it for today.
Have a great 4th of July, and I’ll be back early next week.
Talk soon,
JD
The Rational Trader
