volatility-short
Fading a volatility spike, betting the fear was priced richer than it deserved.
What defines it
Volatility spikes hard on a shock, then decays — because the shock resolves, and because volatility products bleed structurally through contango. The trade is the decay, not the direction of the underlying.
What makes it work
The spike being an event, not a regime. A single headline, a single bad print, one panic session — those mean-revert. The term structure is the tell: when the front month is bid far above the back, the market is paying for immediate fear and that premium burns off fast.
What kills it
A spike that turns out to be the first leg of a regime change. Volatility clusters — a real one keeps going and the losses compound while the position size stays the same, which is exactly backwards. This strategy wins often and loses big; the losses are the whole risk story, so size for the tail rather than the base rate.
What to record
Where the spike started, the term structure at entry, and how many sessions the decay took. The failures matter more than the wins here — log them at full detail.
Examples
all 2 →SPY had a sudden drop and I got an alert that RSI for VXX was above 70. I saw it hang around the 21.62 cents for a few seconds which made an easy entry to short into the pop and sell around 3 minutes later And this is how the SPY looked like when VXX spiked, it was a huge dip in less then 1 min
SPY started the day going vertical to the downside, after a good doji it slowed down and started making higher highs. Making a good consolidation on VXX and eventually breakdown from it, having a stop on the top of the consolidation offered a great risk reward on the trade. I got alerted on the first high and waited for it to break down from the next low. Reference SPY chart