Key take-aways for traders and investors
Ultra-low volatility across equities, gold, currencies and even the VIX itself has lulled many participants into a false sense of security. The presenter argues that this calm is unlikely to last and outlines specific trades and macro catalysts that could reignite turbulence.
Volatility is plumbing multi-month lows
The Average True Range on gold has collapsed since the March–April excitement, while the VIX itself is sitting near cycle lows. The same pattern is visible in the US dollar index, Nasdaq-100 and most G10 currency pairs. Historically, such compression phases resolve with sharp, directional moves.
Positioning: long VIX via a call spread
To express the view that volatility is mis-priced, the presenter has purchased an in-the-money VIX call and sold an out-of-the-money call, expiring in mid-November. The structure is a defined-risk debit spread that profits if the VIX spikes above the short strike any time before expiry. He frames this as a hedge against existing long exposure in US mega-caps rather than an outright bearish bet on equities.
Complacency indicators flashing red
- S&P 500 put/call ratio is stretched to the downside—heavy call buying suggests overly bullish sentiment.
- Bitcoin has outperformed gold for months, but the BTC/gold ratio is now rolling over, hinting at a shift toward risk-off.
- Bitcoin itself failed to hold new all-time highs and has since retreated, reinforcing the risk-off signal.
Jackson Hole: the week’s binary catalyst
Friday’s speech from Chair Jerome Powell is the marquee event. The presenter sees two plausible paths:
- Hawkish hold: Powell asserts Fed independence, signals at most one cut in September, and pushes back on further easing. This would likely lift the US dollar, weigh on gold and risk assets, and could trigger the volatility spike he is positioned for.
- Dovish pivot: Powell aligns with market pricing for multiple cuts. Equities and gold would probably rally, while the dollar and yields fall.
His base case is a “hawkish cut”—one reduction in September accompanied by language that makes a second move unlikely unless data deteriorate materially.
Macro dashboard: mixed signals
Recent US data present a contradictory picture:
- Positive: Q2 GDP beat, PPI hotter than expected, strong wage growth, better ADP and jobless claims.
- Negative: Manufacturing and services PMIs below 50, soft retail sales, cooler CPI, weak JOLTS and a poor non-farm payrolls print.
This tension keeps the Fed in data-dependent mode and raises the stakes for Powell’s guidance on Friday.
Trade set-ups on the radar
While the core volatility hedge is the VIX call spread, the presenter is stalking several directional trades once price reaches key zones:
- Gold: Interested in longs only on a pullback to ~US$2,270 or a decisive breakout above resistance.
- Silver: Watching the US$26.50 area for potential long entries.
- EUR/USD: Would add on dips into 1.1550–1.1600, with deeper bids near 1.1450.
- Crude oil: Maintains a bearish bias; looking to short any bounce toward US$66 with a stop above the recent swing high.
- USD/JPY: Expects further downside as a risk-off proxy, congruent with the VIX long.
Putting into practice
- Review your portfolio delta. If you are heavily long US equities, consider a low-cost VIX call spread or protective puts on the Nasdaq-100 as portfolio insurance.
- Watch Friday’s Jackson Hole address live. Pay attention to Powell’s phrasing around “restrictive” policy and the path beyond September.
- Set alerts on key levels. Gold at US$2,270, EUR/USD at 1.1550 and WTI at US$66 are the immediate zones to monitor for entry.
- Size for volatility expansion. If the VIX spikes above 25, expect correlated moves: yen strength, dollar firmness against risk currencies, and pressure on high-beta tech names.
With positioning crowded and volatility compressed, the cost of insurance is low and the potential payoff is asymmetric. Friday’s speech may well decide whether the calm persists or the next wave of turbulence begins.