The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
The S&P 500 boomed higher on Friday and the VIX took it on the chin, closing down .67 points.
Interestingly as the rally got stronger, VIX came off the lows.
That’s not usually a great sign.
A little pop in volatility would be perfect with what is happening this week…
A reverse split in UVIX.
These reverse splits create opportunities that cannot be overstated.
That’s because of how they are structured.
UVIX does not gain and lose points randomly.
It gains and loses points based on the percentage move of the 30 day VIX futures index.
If the index is down 1%, UVIX should lose 2%.
That means if it is priced $4, we are talking about .08. The ETF has dollar strikes, which means there are practically no strikes in play except for ATM options.
Following a 5-for-1 reverse split on Wednesday, each share is going to be priced over 20 dollars. That means a 2% move is 40 cents – that puts several strikes into play where we can buy and sell vol.
The ETF goes from basically untradable to one of the best trades … OVERNIGHT.
Now, knowing that over time UVIX loses money, we can set up long term plays … and knowing we are in a volatile market allows us to easily play the movements both up and down on this product.
This is going to be fun …
Your Only Option,
Mark Sebastian