The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up.

Hey Traders,

The VIX flirted with 30 yesterday …

But that wasn’t what caught my eye.

On Thursday, there were a few massive VIX trades that crossed the tape …

First, there was a massive roll out, with one trader selling their August-dated 35/70-strike call spread and buying the November 40/80-strike call spread.

Then we saw a huge risk-reversal in the August term, where the trader purchased the 55-strike calls and sold the 23-strike puts.

This essentially creates a synthetic long position in VIX.

But … there was also a rather large purchase of July 25-strike puts … 30,000 to be exact, bought for $0.38, or $1,140,000.

What message can we take from these trades?

Near-term, volatility may fall … but long-term, Smart Money is still scared.

Looking at the VIX futures curve, we are still in contango …

And November puts are actually cheap, relative to October puts … perhaps this helps explain the November-dated call spread above:

And it is good to note that VVIX – the VIX of VIX – is still dirt cheap.

So it makes sense to execute hedges now.

What can you do with this information?

Personally, I like the idea of buying some July or August-dated puts, and hedging with a long position in August or September.

Your Only Option,

Mark Sebastian