Was It All A Dream?

The VIX has gone for a wild ride over the past three weeks.

You remember them, right?

They included an inauguration, an impeachment, the GameStop Saga of ‘21 and much, much more.

Anyway, during that time, the “fear index” went from 22 to 37 … and back to 22.

Take a look at the price action of the curve below …

  • The orange line is the curve from 2 weeks ago.

  • The blue line is from last Friday.

  • The pink line is the current VIX curve.

It always astounds me how quickly the VIX can blow higher — and then see the air completely spill out.

The VIX is right back to within .40 of the low from a few weeks ago.

Yet if you look below at the futures curve, what do you notice …

The VIX futures are still elevated to where they were trading two weeks ago

And the curve was pricey then in regard to where it historically trades relative to the VIX.

Basically, the VIX futures have A LOT more air to suck out.

I think in the next week, the Feb future is going to drop below 23 — or even 22.

March is heading to below 25.

This will put tremendous pressure on VXX and UVXY, which carry a basket of first and second month futures (the goal being to track the return of a VIX future with 30 days to expire).

VXX was about 16.05 on Jan. 26 — an all-time low.

I think we have a shot at VXX hitting 15 by Feb. 19, the regular February expiration. 

I’m a buyer of the Feb 16 14.5 puts for .55.

The Option Pit VIX Light is RED, short volatility has edge.

Your Only Option,

Mark Sebastian

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