Both VXX’s short interest and non-commercials’ net shorts in VIX futures comprise potential fuel for short squeeze. Whenever that is.
For now, longs get a reprieve if VIX:VXV at least unwinds the oversold condition it is in (INDEXCBOE:VXV).
Except for a rise to the mid-.80s toward the end of June, the VIX-to-VXV ratio has lingered in oversold territory for the last nine weeks, four of them in high .70s, including the last two (chart 5 below).
Several times in the past two and a half years, after going sideways for several weeks, the ratio has shown a tendency to shoot higher toward overbought territory and then quickly retreat.
At least near term, odds of unwinding have grown.
For the past three sessions, the CBOE equity put-to-call ratio was 0.56, 0.53 and 0.56. The last time the ratio was in the .50s for three consecutive sessions was June 21-23 this year. Soon followed a quick pop in VIX, which shot up to an intraday high of 15.16 on the 29th that month.
Too soon to say if things will resolve in a similar manner this time around. But historically the P2C ratio does show a tendency to mean-revert. Chart 6 (below) plots the ratio using a 10-day moving average. At .598 last Friday, it is approaching a zone off of which it can swing back up.  Unless “it is different this time”.
Thanks for reading.
Read more from Paban over at hedgopia.
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Author may hold a position in mentioned securities at the time of publication. Â Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
