The VIX Light is Red: Volatility is likely to Drop.
Hey Traders,
We are heading into a big week next week.
We have two big events that are going to change the scope of markets for the next two weeks.
And they involve both the VIX and the SPX and expiration …
These two events are:
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- VIX expiration. September is rolling off, October is coming on.
- Quadruple witching: the expiration of S&P 500 futures and futures options, expiration of SPX index options, and expiration of SPY.
- VIX expiration. September is rolling off, October is coming on.
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Over the last five months we have seen a pretty strong pattern:
Bottoms of small sell-offs come the week of expiration …
But something is a little different this time …
We ALREADY started to see selling this week.
The S&P 500 (Ticker: SPX) is off about 50 points this week, a little over 1%.
With that the VIX has popped …
Why?
Expiration.
Positions by option traders in both VIX and SPX can push these indexes around.
But once they are done, the SPX pops and the VIX drops.
If we do touch the 50-day moving average in the S&P 500 we could see another 1% down …
But I think smart traders are seeing this pattern and front-running it.
I think we are going to open down Monday, and then potentially rip higher.
This would kill the VIX, and cause SPX to move toward new highs.
SPY Sept. 17 450-strike calls cost about $1.78.
I think they are a nice play either heading into the weekend, or early Monday morning.
Your Only Option
Mark Sebastian