The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.

Hey Traders,

The Option PIT VIX Traffic Light is still red …

Even with the VIX rising for its fourth day in a row.

Now, we could attribute this to expiration next week.

It wouldn’t be the first time we’ve seen the VIX rise in anticipation of expiration …

In the pits, VIX was getting hit by very heavy trading volume today.

So what did we see cross the tape today in the VIX pits?

For starters, VIX pits saw 125% of their average daily volume …

That’s a pretty significant amount of extra attention traders are giving to VIX right now.

Here is a snapshot of the largest VIX trades that went up:

I specifically want to mention that there is a LOT of buying volume today.

A LOT of it was at relatively near-the-money strikes, too …

Suggesting traders might be hedging “for real” by buying “meaty” options that are more likely to end up in-the-money …

As opposed to just hedging with cheap, far-out-of-the-money baby options that basically for a catastrophe …

Look at the huge trade that went up at 12:17 p.m. EST …

This trader bought 22,000 of the December 20-strike calls at the same time as 15,250 contracts of the December 21-strike calls, and 13,420 contracts of the December 21-strike puts …

That isn’t all.

At the same time, the trader bought 15,000 contracts of the February 27-strike calls, 10,560 contracts of the February 2022 23-strike calls, and 12,000 contracts of the 23-strike puts.

Overall, of the top five strikes that saw the biggest volume, FOUR were calls.

And seven of the top 10 biggest volume strikes were calls …

That is significant.

Someone is putting down A LOT of money on calls …

That is enough to keep me interested.

The VIX Light remains red …

But for how long?

Your Only Option,

Mark Sebastian