The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.
Hey Traders,
Today we will start seeing some of the local election results trickle in …
And tomorrow’s Federal Open Market Committee (FOMC) meeting will give us a read on interest rates, inflation, and tapering.
I’m going live in a private strategy session tomorrow with our resident political expert Frank Gregory and Head Income Trader Bill Griffo to discuss how we’re going to attack the market and trade these events. You must be a ticket holder to attend – click here for more information.
However, even with the election and FOMC still to come, the VIX is down today.
And it looks like there is a push for it to go even lower.
Here is what I am seeing in the VIX pits, and how I would trade it.
The VIX is currently trading just above 16 today, but it did temporarily break lower to dive into the 15-handle.
Ahead of November VIX expiration, there is at least one big trader pushing for the VIX to go even lower.
This trader originally purchased 10,000 of the November 18-strike puts.
But today they are closing and rolling to open even more contracts at an even bigger strike.
That’s a strong statement about where they believe the VIX is going.
Their sale of the 18-strike puts brought in $1,374,000 of premium received.
They then rolled this into a purchase of 18,000 contracts of the November 17-strike puts for $0.78.
That’s a $1,404,000 purchase that this trader reduced down to just $30,000.
That also brings up the breakeven to about 16.98, instead of the 16.22 VIX that would be needed to hit profitability if this trader had paid the listing price.
This is a strong message that someone out there thinks the VIX will remain below 17, or lower, in the immediate weeks ahead.
However, I would do one even better.
With earnings season wrapping up, and the FOMC announcement just one day from now, I think we could see the VIX head even lower.
Personally, I am liking the VIX November 15-strike puts for $0.15.
Your Only Option,
Mark Sebastian