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

Hey Traders,

The S&P 500 (Ticker: SPX) is just off an all-time high.

The VIX, though, has failed to close below 17 for three days in a row yet again …

But that’s not what I’m watching …

I am seeing a different index making new all-time highs …

And what this means has huge ramifications on the market.

With the S&P 500 at new all-time highs, and the VIX near post-pandemic lows… 

Some traders might wonder if it is time to hedge.

The answer on the Street seems to be “yes” …

But … not in the way that they have been hedging over the last year.

I’m seeing something strange happening to cheap puts …

They are getting really bid up.

The chart I am about to show is the Cboe SKEW index.

This index tracks the value of “crash puts” on the S&P 500 — inexpensive puts that money managers buy just in case something bad happens …

As you can see by the green line, the index is at a two-year high!

But actually, if we go back in time, one will notice that the two-year high is actually an all-time high!

“Really cheap” puts are as expensive as they have ever been …

Here is the thing though …

That’s bullish for the S&P 500, and bearish for volatility!

Think about it this way …

If I thought the market was about to crash would I buy cheap puts?

The answer is no.

I would buy meaty puts that can make money almost immediately.

These “cheap” puts need a SERIOUS move to even come into play.

The puts that are making the SKEW index move are the 3000-strike puts and lower.

This means there is demand for the cheap stuff … the “just in case” stuff.

This is showing me that big money is playing the market to go higher …

But … they want something cheap just in case …

I think this points toward more upside through July 4th.

I would short volatility, and go long on indexes.

Your Only Option,

Mark Sebastian