Winds of Winter

Mark Sebastian

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

The S&P 500 blew higher on Wednesday, running up 56.82 points.

The VIX was smoked. It fell 1.41 points to 20.07 and even briefly dipped below 20.

So what does a trader do?

It’s this simple … option premiums are oversold right now.

Could they fall further? Yes … but movement is exceeding the VIX.

Twenty-day vol is well into the 20s when we add in Wednesday.

Actual S&P 500 vol is breaking 19.

I would be a buyer of option premium here. You can short Jan VIX by owning puts for a hedge.

When you consider VVIX is 77.64, VIX options are cheap:

I would buy strangles and buy VIX January puts.

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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