The Option Pit VIX Light Is Red, And Volatility Will Drop.
Hey Traders,
Were you watching what happened yesterday?!
No, I’m actually not referring to Part One of our Short Squeeze series.
(By the way, Part Two starts at 11 am EST — click here for direct access! We’re getting into the ‘hedge fund’ side of things today … it’s going to be good!)
I’ll just go ahead and say it …
Thursday was weird.
We saw the S&P 500 (Ticker: SPX) dive to below 4200, only to bounce off the low, and briefly turn green …
And then turn around again to end the day slightly in the red.
The Nasdaq 100 (Ticker: NDX) was up 1.3%, the Dow Jones Industrial Average (Ticker: DJIA) was down 0.62%, Russell 2000 (Ticker: RUT) was down over 1.15% …
Yet the VIX — who went on a wild ride — might be saying “this is just noise.”
Yes, Thursday was one of the weirder days I have seen in a while.
With Quadruple Witching happening on Friday, we saw the S&P 500 make some attempted crazy moves.
I mean … it was below 4200 … only to bounce back and get to green …
Then it fizzled, and closed down 1.84 points — a whopping .04% …
Another ‘inside day’ for the S&P 500.
An ‘inside day’ is when the S&P 500 fails to have any real range and/or breakout one way or the other.
The VIX, by comparison, on this weird day, was as low at 16.70, and as high as 19.13!
In the end it closed lower …
So, the question is …
With the S&P 500 down, and the VIX down … is that a sign?
Maybe …
With expiration tomorrow, the VIX felt like it had a lead weight around its neck, even at the S&P 500 lows …
With Quad-Witching settlement on Friday, there is a significant chance that we could see the S&P 500 make a strong move …
With the VIX looking soft, that move could easily be higher.
Check out the open interest on the SPDR S&P 500 ETF (Ticker: SPY) June 425-strike calls:
SPY options trade at approximately 1/10 of SPX. So if the S&P 500 gets over 4240, and these calls come into play, we could see a huge gamma squeeze through the SPY 425-strike …
At a cost of just $0.11, I think the 425-strike calls might be a touch under priced, as they are 100% in play for tomorrow’s quad-witching-typically-are-crazy settlement.
Your Only Option,
Mark Sebastian