I Can’t Drive 5.5

Mark Sebastian

The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move Wildly

The S&P 500 exploded higher.

Meanwhile the VIX fell by 2.56 points – not exactly a tanking for the relief rally the market enjoyed.

In fact, as the S&P 500 began to get stronger … so did VIX.

The top is S&P 500 futures, the bottom is VIX futures:

Notice while the S&P 500 closed near the highs….VIX was also somewhat close to its day’s highs.

Now look at the spread between S&P 500 realized and implied. 20-day HV is in blue; IV is in red.

With realized volatility as high as it is and implied falling … options on the SPX are EXTREMELY cheap.

I am a buyer of SPX options either up or down, I would hedge it by putting on the pair in VIX.

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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