 Good morning everybody. It's Hari Swaminathan from optiontiger.com. It is April 25th and it's been a couple of weeks since I did a video at Gone to India for a short break. I wanted to look at today the ES, ZB and the VX. So for those of you who may not be familiar, ES is the S&P 500 futures, ZB is the bond futures, the long-term bond, the VX is the VIX futures. So I'm just taking a look at the past weekend because there was quite a bit of stuff going on this past weekend and how some of that has actually played into the market. So let's take a look up until the last Friday, I believe the sentiment was poor in the sense that people were concerned about the French elections and of course various other geopolitical stuff going on. But the French elections for some reason have turned, have given that catalyst to an upward move in the market. So you can see that clearly on the ES on Friday as well, we went into the close fairly down I believe. Let me just go back a little bit more starting Friday. Yeah, starting Friday was over here and you can see that it went down and similarly at the same time you can see the ZB is going up on Friday and that's to be expected because stocks and bonds are inversely correlated and in general, both of them will move in opposite directions. It's only when they don't move in opposite directions, that's when you have to think what's going on here and that might give you a clue about something else. So in this case on Friday stocks gave up and bonds went off into the weekend on a pretty much a high level. Then came on Sunday the news that the happy part of it is that it's completely different people coming in otherwise I don't know why the markets would have reacted in such a way that was just like sort of a primary and so we have another round coming up of elections. So regardless, markets felt good so you can see in the futures itself after hours itself it started going high on Sunday itself. On Monday and then it retraced back a little bit but once again it was a decent move on the markets and that's where we were on Monday and today it seems that the sentiment is continuing and it's going up there. Now what I find a little strange is the behavior of the ZB and the VX not to a very large extent but to some extent at least you can see that bonds obviously were crashing over the weekend and when the futures market started and then once the market started on Monday so look what happens the markets obviously they're at an elevated level so whereas the bonds did not give up anything further in fact the bond starts going up so when the markets over here the stocks are going up and the bonds are also going up on Monday. So that's a little bit of a weird thing because they generally don't go up together and so I think the bond market could be saying something like hey this is just the primary what's the big deal you know something like that right so whereas the stock market seems to be a little bit more exuberant about that news regardless and then so now the bond markets have come down today actually it's well it came down in the overnight session and today it's kind of flat over here so if now if you see the VIX futures the Monday when the market starts the VIX is like sort of at a high level but regardless after the market opens it sort of you know comes down and that's okay and then there's very little overnight activity and all of that the VIX falls here so it falls to a low so the VIX falls to a low the bonds falls to a low and the S&P goes to a high I mean so now all three are in sync so which tells you that the market is somewhat in stability mode when you see these things now notwithstanding any anything that was not clear in the middle or did not correlate properly in the middle it tells you that there is stability here however now if you go take the look at the VIX index you can see it's at 10.64 I mean this is you know really at the very very bottom range of the VIX itself so everything is saying that there is nothing to worry about and if we are following geopolitics I just don't believe this to be the case I mean there's plenty of things to worry about North Korea has its annual 85th annual day and something like that there's the USS Carl Vinson going I mean a lot of this is you know saber rattling rather you know but still you know there is anything can actually create some kind of a spark so what my point is that I believe all aspects of the market are ignoring risk in a very big way at this point and so there is no time like this to buy some S&P puts for example or you know perhaps you know a VIX call spread maybe and even all the stock volatilities I'm sure are pretty low so you know this is the this is the real time to be you know putting in some either hedging or speculation some really good trades so that you know when something happens the VIX is going to you know spike the VIX of course is a very short term instrument but when you look at bonds and when you look at the S&P futures you know bonds especially you know that's not going to be I mean that's going to be smart money playing there because very little retail players play in the bond market so bond money is always considered as smart money so there is some worry there in the bond market because couple of these days it did not correlate very well in fact yesterday it did not it's really a good time to get a little aggressive on the put side because you know if the volatility spikes and there's something happens over the next month or two or whatever so you know you can really make a big huge profit so for example what I would say is if you were looking at the S&P let's say so we have SPX and when you're trading this kind of a trade which is a combination of a hedge and a speculative trade you want to really give yourself enough time the options you want to give it give yourself quite a bit of time actually because you don't know if it's going to play out in the next couple of weeks but anytime you see the VIX at 10.66 means short term the risks have been totally non-existent as far as the VIX is concerned and that's just not accurate at all so I would say let's go to a either the 51 days or the 86 days you might find more liquidity at the 51 and the 86 on the monthly so let's go 51 for now and see what it is so if we if we were to construct a trade over here these are expensive options so you know you have to keep that in mind so but what we can do is to do do it as a spread so for example let's say we have 16th you know this thing expires 16 June between now and 16 June there's quite a bit of time left something could happen which could spike the volatility okay then we can see the plus or minus is 85 but that's at a volatility level of 11.8% on this series but you know what would be a I would say a 3 to 5% drop on the SMP yeah that sounds very very likely very reasonable so you want to make a you want to make a debit spread at that point so that you don't spend too much money on these options but instead of 23 20 23 15 you want to increase your profit margins a little bit more by you know making that $20 spread so when you make it a $20 spread you're paying 2.85 for that spread therefore your reward is going to be 17.15 okay so if you invest so this is what it would look like and you can see that the you know the risk on this trade is 2850 whereas your reward is 17000 so you know the risk reward is really good for this kind of a trade and the kicker would be that you have a positive Vega so for every point increase in the VIX you know you're going to you know kick in 306 you have negative data obviously because you have a debit spread and you have a slightly negative delta because it's you know you're buying a bare bare put so all this is fine you know all this is fine and for another three four weeks if nothing happens then you know you can think of doing something to it but until the option reaches the final 25 days you can skip this trade and for a small risk of 2.85 you know you have the potential to gain a lot of and granted we don't have to wait for it to become 17 but you know even if 2.85 becomes 5 it becomes 6 it becomes 8 yeah that's a very very good outcome for the trade notwithstanding I think you know if we have positions that are structured to the long side of the trade then this would be some kind of a hedge to those positions so that's what I wanted to cover today hopefully this was helpful if you have any questions please email us info at option tiger.com and if you like this video please do share it with your networks thank you