The Option Pit VIX Traffic Light Is Green: Volatility is likely to stay high.
The S&P 500 had a rough day on Friday dropping 105 points.
VIX was up again by .84 points … but it was not up as much as it was on Thursday when VIX was up 1.97 points even though the S&P 500 only was down 38 points …
There are two simple reasons for this action … the news was out … and by that, I mean non-farm payrolls …
Remember the fear of the Axe Murderer is scarier than the actual murder …
The other piece was the weekend.
Heading into a weekend VIX tends to be soft.
But despite the ‘soft VIX’ VIX is displaying a ramp pattern that leads to a serious vol swell:
VIX is ramping higher …
While the index itself is trading below October … VIX is in a steep backwardation again:
When we step in on Monday, with the weekend effect back in the index … VIX is going to be trading above October.
So with the VIX ramping and backwardation in play …
The VIX ETPs like VXX, UVXY, and UVIX make some sense to trade VIX long on an intraday basis.
For hedging purposes, November continues to be the month that every trader is concentrated in.
I like long Oct and Nov call spreads and I actually think December puts are cheap.
I would go long near-term call spreads and flies and hold longer-dated puts.
Questions? Drop a comment below or email me.
Your Only Option,
Mark Sebastian