The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move Wildly
The S&P 500 closed down 56 points, more than 50 points off the lows, but still down 1.45%.
The VIX topped out at 24.30 before backing off to only 21.97.
This is the second day in a row that the big move has been faded.
The strategy so far has been to catch the move early in the session with a put or call on SPX that is almost certainly too cheap.
(Realized vol, by just about any metric – especially average true range – is exceeding the cost of options.)
Then around 2 p.m. ET, the play has been to unload the option you are holding and set it up the other way.
If you don’t want to day trade – and I do not blame you — there are a couple of things you need to do to adjust your trading.
- Tighten exits
- Trade smaller
You can make a lot of money on these huge swings with just a couple of contracts – no need to be a whale in this market.
A great way to trade this is in my Nitro Trader program, where I have 14 wins in my last 17 closes.
The other thing is …
Stay short Jan. VIX:
The curve is wide and VIX can drop below 20 just as fast as it can get to 24 on a single day of rallying.
Despite Thursday, I think we will see a sub 20 VIX next week.
Your Only Option,
Mark Sebastian