We Could Be Headed For A VIX Collapse

The Option Pit VIX Light Is Red, And Volatility Is Likely To Drop.


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Back to the VIX …


Coming out of a weekend, we often expect the VIX to be up.


And on Monday, it was … for most of the day …


But then as the market rallied higher to end the day nearly unchanged, the VIX also managed to get to even on the day.


There is a lot to unpack about the VIX trading Monday.


And while volume was slow, there were a few clear signs of what the VIX is doing next.


Here is what I saw.


Coming out of a long weekend last week, for the VIX to close unchanged, effectively means it went down.


I explained why in this post that I highlighted last week.


But that is not the only interesting tidbit.


The VIX has now closed below 17 for two days in a row.


It did this once in April …


And that is the ONLY other time since the start of the pandemic:


Additionally, the VIX closed flat (essentially down) on a day where the S&P 500 (Ticker: SPX) was actually down on the day.


Yes, it was only down three points, but lately any down move in the S&P 500 has meant a VIX rally …


Not this time.


SPX movement has collapsed in the last 10 days:



It is now approaching lows for the year, and who knows? It could go lower.


So what does all this mean?


Add in all those July puts I discussed in Monday’s post, and I think we have a recipe for a full-scale VIX collapse.


I’m calling it now … I think we will see the VIX trade near 15 this week.


June expiration next Wednesday is set to be the lowest since the pandemic, unless a shoe NO ONE currently sees coming drops …


I would be playing VIX June 15, 16, and 17-strike puts leading into Friday.


Your Only Option


Mark Sebastian

TLT Trade Tuesday

Hey There Income Hunters,

 

I smell a rat.

 

That’s right, I have a sneaky feeling the Fed is playing games in the bond market..

 

There are so many reasons for bonds to be going down right now, and yet.

 

Here are a couple of examples:

 

      • Forward looking inflation expectations are over 3% with 10-year rates at 1.55%. That’s a real rate of return of -1.45%, which is a new all-time low for this cycle — and it means 10-year rates should be higher.
      • Russia announced recently that it’s ditching US assets for gold, Euros and Yuan.

 

Yet U.S. stocks and bonds are higher in price!

 

Sometimes this will happen in supply and then the auctions go terribly.

 

This could be one of those times.

 

We are right at the top of the range in the 10-year yield, so this is an excellent low risk/high reward spot to short iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT).

 

On the Charts

 

 

We are right at the top of the short-term trading range in TLT.

 

In environment’s like this — high inflation, increasing supply, foreign selling and non-buying of Treasury securities — auctions never go well.

 

It’s possible the Fed is working with the banks by using additional quantitative easing (QE) to absorb inventory and request greater participation in the auctions.

 

We have to be aware of the Fed’s urgency to find ways to inject stimulus into the market while the money supply is drying up

 

TLT Trade I am Putting on Today

 

I am going to take a flier today on TLT puts expiring this Friday.

 

The TLT 139-strike puts are trading at around $.60 for June 11 expiry.

 

I am going to hold a couple of puts into the consumer price index (CPI) number on Thursday when we also get a $24 billion 30-year Bond auction.

 

We could easily see a $2 down trade into Friday, which would provide a 150% return.

 

Not bad for a three-day trade …

 

Bring It Home

 

Nothing surprises me when it comes to the Fed.

 

There is tremendous pressure coming at them, especially from China and Russia as they have been buying up gold to back their currencies.

 

That has to put fear in our central bank.

 

The race for dominance as the world transitions to a new monetary system is heating up.

 

And I’ll cover that and much more during a LIVE event this week …

 

Register now to join me at noon EST on Thursday!

 

Until Then …

 

Live and Trade With Passion My Friends,

 

Griff