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The Option Pit VIX Traffic Light Is Red: Volatility Is Likely To be Stable or Drop.
Hey Traders,
VIX closed at lows not seen since January 12th settling at 18.57, down 1.06 points on the day.
Only a few weeks ago traders would have sworn up and down that there was no way VIX was going to be below 20 …
Clearly they were wrong.
And considering this is a Monday, and we have the Weekend Effect in the index, VIX really got smashed.
Even more impressive was the move in the futures.
Check out the drop in VIX futures over the last three sessions:
On Thursday, the April VIX future closed 23.10. Monday’s close was 21.10.
That is a two point VIX futures drop in two trading days. That is a MASSIVE move for VIX futures.
Yet even with the move, April futures are still trading 2.60 points above the cash.
That is a huge spread given we only have 15 days left in the VIX cycle, including a long weekend!
We could see more downside here.
The VIX April 17-strike puts went out with no bid at $0.10.
These are worth more than nothing. I would be a buyer for $0.05. I think the risk-reward is there, as they will almost certainly trade above $0.10 if the VIX continues this path.
Alternatively, ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) puts for next week – heading into the long weekend – seem a bit underpriced.
I would be a buyer of these.
Your Only Option,
Mark Sebastian
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