Harnessing Volatility: Trades From The VIX Gurus

Last night’s volatility roundtable was a no-life trader’s paradise and a must-see crash course in all things options.

MacroTourist Kevin Muir hosted former Merrill Lynch derivates guru Harley Bassman along with volatility traders Michael Listman and AJ Monte. They began by diving deep into what volatility is and how it colors their trading.

Premium and Professional readers can watch the full debate here. Here were the highlights for those short on time:

What is ‘Volatility’?

While at Merrill Lynch, Bassman created ‘MOVE’, a volatility index for the bond market that mimicked the VIX formula (backstory in the full debate). There could be no better bona fides for an options/vol 101 teacher. This was Bassman’s 60-sec intro:

“When you price an option up… the most important [variable] is the implied volatility… Take gold at almost 3,000 now. If it has a 10% vol, that means there’s a 60% probability, it’ll be between 2,700 and 3,300 [by the end of a trading day].”

So how does implied volatility play into options trading? Bassman: When it’s high, buy options. When it’s low, sell them.

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— ZeroHedge Debates (@zerohedgeDebate) February 14, 2025

Timing Swings — Long and Short

One of the more popular if dangerous VIX proxies is UVXY, an ETF that holds short-dated VIX futures. Its price degrades rapidly because the futures it holds are always near expiry but when vol is high, UVXY can see violent swings to the upside.

Not to be tried at home, AJ Monte relies primarily on technical wizardry to look for buy signals indicating upward swings in the UVXY to buy call options. He outlines two key indicators: “bullish engulfing candles” and the VIX’s 100% gap-closing track record (explained in clip below).

And for those who don’t believe in chart voodoo, note that vol veteran Bassman went from “drowning chartist in shallow water” to “coming to appreciate them” over his storied career:

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— ZeroHedge Debates (@zerohedgeDebate) February 14, 2025

On the short side, Michael Listman profits from UVXY’s reliable degradation. His formula is simple:

The ETF is constantly making all-time lows. About four to six times per year, it will shoot up 30%+ percent from a low. When it does, Listman goes short until it comes back down again.

“I do that six times a year… I’m happy.”

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— ZeroHedge Debates (@zerohedgeDebate) February 14, 2025

Bassman’s Macro Trade

“My big view is higher for longer.”

By that Bassman means interest rates. He sees inflation as sticky, regardless of who’s in office:

“We have the boomers retiring, the millennials having kids. So the supply/demand is like a 1970s redux… Inflation is a public policy good if you’re running a giant deficit because that’s the only way to get out of a debt problem. You either grow or you inflate, and we’re going to inflate.”

Exploiting high rates, Bassman is long high quality mortgage bonds.

“A mortgage bond — a Fannie, Freddie, Ginny mortgage bond — is a brain dead buy right. There’s no credit risk… The stuff I have right now is a six coupon bond.”

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— ZeroHedge Debates (@zerohedgeDebate) February 14, 2025

Bassman’s Simplify ETFs created MTBA to capture the trade described above.

Be sure to check out the full debate for more trades, vol deep dives, and to relive our guests’ favorite live rock concerts from the ‘70s.

Our guests can be followed via the following links:

• Kevin Muir’s MacroTourist Substack
• Bassman’s Twitter
• “UVXYtrader” Listman’s Twitter
• AJ Monte’s StickyTrades