The Option Pit VIX Light Is Red, and Volatility Is Going to Drop.

Hey Traders,

The VIX actually got down to 16.87 on Wednesday and closed at a pandemic-era low of 17.16.

That’s five-straight days below 20 for the VIX.

Now traders — especially those who try to use technical analysis — are asking, with VIX this low, is it getting ready to bounce?

The short answer is … no.

In fact, the speed to the downside appears to be picking up.

Wednesday was a relatively flat day for the S&P 500 Index (Ticker: SPX), and a rough day for the Russell 2000 Index (Ticker: RUT), with the index down over 39 points …

Meanwhile, VIX was down almost a point.

VIX futures have had an equally rough run.

Week over week, the VIX futures have been absolutely crushed:

The April VIX future, which has two weeks to expire, closed Wednesday below 19.

Here is the thing, and why I am so bearish VIX …

Volatility spurs volatility …

And volatility suck, spurs more volatility suck.

The VIX tends to correlate to itself, meaning that as it drops,it tends to keep dropping.

It’s a spiral!

And with the pandemic (presumably) approaching its close, VIX appears to be heading toward the wrong side of 15.

I had targeted a 17 close for April. That is probably too high.

The VIX April 16 puts were a .10 yesterday, so I bought some.

There are strong odds I will get to sell those at .20-.30 next week, and then …

If the downside catches a head of steam, we could really see those puts blow up.

One of the best trades I have set up in the last few weeks was the VXX April 10 puts purchased for .05. 

They are now worth .17 …

I actually sold half the position at .11, and might not sell anymore until these go to .25.

Even when volatility falls, there is money to be stacked.

The Option Pit VIX Light Is Red, and Volatility Is Going to Drop.

Your Only Option,

Mark Sebastian