How To Trade the Incoming Volatility Wave

Mark Sebastian

The Option Pit VIX Traffic Light Is Yellow: We Could See Wild Moves In The VIX.

Hey Traders,

The Option Pit VIX Traffic Light is now yellow, and we could be in for some fireworks.

Along with the VIX popping over 20, we are seeing other important volatility changes …

Notably, VIX volatility itself is climbing pretty rapidly:

We could be at the front end of a short wave of volatility.

VVIX has also been slowly climbing:

With VIX expiration tomorrow and a ton of open interest, we could see all kinds of movement on tomorrow's expiration.

The Jan. 19 23-strike calls, which are 100% in play, cost about $0.45, and the 25s are about $0.15.

I might look at the VIX 23-25 call spread for $0.30 which has a really nice favorable risk/reward.

Looking at February, the 25-40 call spread only costs about $1.75; that is a really cheap hedge.

One could buy those and then the 19-strike puts for about $0.75

Remember, the Jan. 19-strike puts traded over $2.00 at one point, so those 19-strike puts above are cheap.

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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