Trade Alert: Volatility Collapse

A chance to make a 20x return if volatility collapses over the next few weeks.

She can’t even look at her screens. Must have bet on volatility going up.

Sorry for the second trade alert in one day. I would have added this to the previous one, but I didn’t find out about it until after, as it was placed in a discretionary account for me at SpreadHunter.

The Core Thesis

Short version: realized volatility is rolling over, and implied volatility should follow as the event premium that got layered onto options in June/early July gets burned off. The catalyst? A string of “wins” being claimed for the tariff strategy (companies announcing shifts, concessions, or price cuts) has reduced the left-tail imagination space. With fewer traders pricing in an imminent escalation surprise, the skew still pays, but the front-month at-the-money vol is vulnerable.

Three Forces Pressing Vol Lower

1. Policy Path Now Looks More Linear
   The initial shock came from uncertainty about magnitude and retaliation. Now there’s a rough template: targeted sectors, staged timelines, and carve‑outs after negotiation. Markets can model that. Less model error = lower vol.

2. Macro Calendar Soft Spot
   Earnings season is front-loaded; the heaviest hitters have printed. The Fed’s next real decision node isn’t for a few weeks. In between, the calendar thins out. Thin macro catalysts + policy visibility = time decay for vol.

3. Positioning Has Shifted
   Dealers and macro funds chased protection in late June. Many of those puts and call spreads are either decaying or being monetized. As those positions come off, vol supply comes back into the market.

What Could Ruin This Call

Volatility collapses never happen in a vacuum. A few things that could re‑ignite it:

• A genuine policy surprise (new tariff category, abrupt retaliation from a major partner).

• A credit event—remember, higher input costs can pinch levered balance sheets.

• A macro shock: energy spike, geopolitical misstep, or a data print that forces the Fed to move sooner/faster than expected.

Betting On A Collapse In Volatility

Our friend David Janello, PhD, CFA, at Nuclear Options Trading, structured a trade that can give us ~20x returns if the CBOE Volatility Index (VIX) closes below 13 at expiration next month.

Details below.

Today’s Vol Crush Trade