3 Things This Wild VIX Curve Shows Us

The Option Pit VIX Traffic Light Is Green: Volatility Will Likely Go Up.

Hey Traders,

There is a reason the Option Pit VIX Traffic Light turned yellow last Tuesday night …

Boy, have we had a wild few days!

And the VIX light, despite the recent VIX movement, is still green … 

For now.

But that could change.

Here is what has happened, and how we are playing it …

On Wednesday, the VIX closed at 18.58.

On Friday, it blew higher to close at 28.62.

That’s more than more than a 10-point pop!

Then on Monday, the VIX got smoked, dropping 5.66 points, and closing at 22.96.

The VIX futures curve had just as wild of a ride.

Check out the movement from Wednesday (green) to Friday (purple) to Monday’s close (blue):

What this shows you is a few of things:

      1. VIX futures have a lot of use, and when the market blows up a lot of people come chasing.
      2. They can take some wild rides as traders pile in and out.
      3. There is some serious uneasiness in the VIX complex with what is happening in the world right now.

This presents some incredible day-trading opportunities …

For instance, on the open Friday, one could have bought the ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) November 26 18.5-strike calls for about $0.30 …

They went out worth over $2.60!

Likewise, the same holds for Monday.

The UVXY December 3 18-strike puts opened at $1.62.

They ballooned to $2.50 …

 Before closing nicely up at $1.90.

When the VIX is blowing up traders need to be nimble.

We were shutting down some hedges Monday, even as we were putting on other hedges against short volatility.

Looking at the VIX itself …

Remember VIX expiration is not until December 22nd, the second-to-last trading day before the holiday week..

VIX could get crushed.

The 18-strike puts were $1.00 on Wednesday the 24th …

They closed at $0.50 on Monday.

You don’t think VIX can get back to 16?

Take a look at those wild moves above again …

We could easily see the VIX spike again …

Or (more likely) Wednesday’s move could get faded hard, and VIX could fall to 15.

Your Only Option,

Mark Sebastian

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