The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
Thursday’s CPI was a huge let down for volatility buyers.
The market was looking for a more than 80-point move.
We got 13.
Even the intraday range barely approached 50.
The VIX, though, got completely smoked dropping to 18.83.
This presents some real opportunities.
And it could not have come at a better time – because there is something big coming.
It's not just earnings season … it's volatility ETP reverse split season!
On Wednesday, the volatility shares announced a reverse split of UVIX.
UVIX is a 2x long 30-day VIX futures ETP.
UVXY is likely soon to follow.
But UVIX is the key because this is its first reverse split.
Since inception, UVIX has lots about 70% of its value:
But this is just the start …
This ETP is going to reverse split 1-3 times a year just about every year going forward…
Why? Because that is what happens to volatility ETPs, especially when they are leveraged.
This is a five-year chart of UVXY:
From a high of over $1,500 during the “volpocalypse” of 2018, to a deleveraging down to 1.5X from 2X, the ETF has still lost about 99% of its value.
The same thing is happening with UVIX – but faster.
ETP’s lose a percentage of their value every day, not a set amount of dollars, and there is plenty of downside opportunity.
I cannot wait, and as we get closer to the reverse split, I will talk more about how to play this for huge gains.
Your Only Option,
Mark Sebastian