This VIX Trade Could Double

Mark Sebastian

The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.

Hey Traders,

Leading into Wednesday, the VIX was up four days in a row.

How long can it last?

Is this leading to THE sell off?

The VIX touched into the 18’s on Tuesday …

The S&P 500 (Ticker: SPX) is down again on Wednesday …

But so is the VIX.

Why?

It’s the CBOE SKEW Index (Ticker: SKEW), which indicates IV (and demand) for crash-protection puts in the SPX.

After blowing higher over the last week, the SKEW Index is starting to fall again:

SKEW is falling because traders are unloading protection.

It appears that the rally in the VIX might be somewhat short lived:

If this is the peak in the VIX, heading into expiration next week, we might see volatility really fall off.

I am a $0.05 or $0.10 buyer of the VIX 15 puts; I think they could double.

Your Only Option,

Mark Sebastian

VIX Edge

Mark Sebastian

Mark Sebastian is a former member of both the Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX), where he spent years mastering the art of options trading in the most competitive environment imaginable. As Chief Investment Officer at the hedge fund Karman Line Capital, Mark manages sophisticated options strategies for institutional clients. He is the author of two highly regarded books on options trading: ‘The Option Traders Hedge Fund’ and ‘Trading Options for Edge.’ Mark is a frequent guest on major financial networks including CNBC, Fox Business News, Bloomberg, and First Business News, where he provides expert commentary on market volatility and options strategies.

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