The cheap asymmetric vol is sitting in bonds
VIX is back around 20. That's where the crowd is putting its vol bets.
The cheap, asymmetric vol is sitting somewhere else entirely.
Bond vol is at single-digit percentiles and realising above its implied. The crowd is pricing some fear into VIX while the actually cheap stuff sits in rates.
Everyone is treating bonds as the asset where nothing happens. The MOVE index is on its knees. The FOMC is done. Yields are stuck in a range.
The bond vol metrics are saying something more interesting.
TLT implied vol is sitting at the 3.4 percentile, basically the lows. But realised vol is actually running above implied. You're being charged less than the thing is already moving.
That's the asymmetry in one line. The carry isn't punishing you for owning vol because the asset is moving as much as the option is pricing. You get the convexity without paying the bleed.
And the catalyst is loaded. The end-of-July FOMC is a live meeting. A real hike is on the table. Walsh signalled less forward guidance and told the market to let the data do the talking.
Less guidance means more surprise capacity. More surprise capacity means more rate vol when the next print comes in. The setup for a vol expansion is sitting right there while implied is at single-digit lows.
Granted, the latest move was more a curve move than an outright shift. But even on a curve move, the right structure on a single point of the surface can deliver on the asymmetry.
The trick is knowing which point of the surface and which structure to use. How? It starts by clicking the link below.
For me, this is the setup worth getting some asymmetry in the book for. The cheapest vol on the board. Realising above its own implied. With a live Fed meeting coming.
VIX is what the crowd watches because VIX is what the financial press talks about. The asymmetric edge sits a few asset classes over.
When the cheapest vol on the board is realising above its own implied with a live catalyst loaded, the trade comes to you.
P.S. TLT implied at the 3.4 percentile with realised running above is a setup you don't see often. It's worth the look.
Imran
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