ARKK Is At It Again… And VIX ETPs Are Noticing

Mark Sebastian

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

Hey Traders,

On Wednesday, the VIX dropped below 18.

But unlike the last few days, iPath S&P 500 VIX Short-Term Futures ETN (Ticker: VXX) and ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) did not get destroyed. In fact, they only lost about the typical daily decay.

What is going on?

The answer: February futures did not drop today.

In fact, they were up:

While January futures were down, February ticked up.

What is the cause?

The answer rhymes with “Markk” …

When ARK Innovation ETF (Ticker: ARKK) funds dropped, the VIX came to life, and the futures noticed:

Unlike the VIX itself, futures never receded after the ARKK dump.

What we are seeing is the mega-caps cover up for a weak Nasdaq.

Remember, almost 50% of the Invesco QQQ Trust (Ticker: QQQ) is made up of just seven stocks.

Those seven were mostly strong on Wednesday …

The rest of the QQQ?

Well, it looks like ARKK.

So how do I play it?

I think an ARKK put spread, paired with either long calls or short puts in the QQQ, could pay nicely.

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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