The Siren Song of Low Volatility Sales

Yo, Pit Crazies,

I wrote about the One-Day VIX (Ticker: VIX1D) in The Option Pit Stop yesterday and how the Cboe is likely to jump into one-day settlement with VIX options.

There have been no announcements, but one-day cash settled options look more likely in the future with 500,000 contracts per day in SPX.

Notice the VIX1D, VIX9D and VIX.

One thing is not like the other.

VIX Zones help in short term volatility

VIX Zones are aimed at the 30-day VIX. They are also helpful for the new VIX1D as they give a rough guide to how the market is moving.

As of the close on Monday, VIX1D is 9.96.  That is firmly at the bottom of Zone 1 and signals the lowest quartile for volatility for VIX. That says the market is not moving in the short term.

The difference between VIX1D and VIX is that VIX1D can be 25 tomorrow on a move.  VIX could pop a point or two but VIX1D can explode.

That is the point Mark is making with the Gamma Bomb.

VIX1D can explode like nobody’s business and right now traders are lulled into selling the lower implied vols in Zone 1.

Watch out below! 

That is why I still like buying VIX strangles. It’s likely VIX is lower in the short term … but man that short term will cause havoc.

The Rundown

The Trading Desk

VIX April 19 30/40/50 call fly, 23 puts, 20 puts closed for a 33% gain.

Power Income Trader

Invesco QQQ Trust (Ticker: QQQ) Apr28 316/315 put vertical spread closed for a 64% gain.

To Your Trading Success,

AG