The Option Pit VIX Traffic Light Is Yellow: Volatility Is Going To Make Wild Moves.

Hey Traders,

Thursday’s trading saw the VIX break below 18 yet again. 

The VIX had another week with a huge range topping out at 27.39 and hitting a low of 17.62.

In the end it settled at 17.96.

The VIX futures also had a huge range on the week. Check out the movement over the last four trading days:

Over the course of three days, the VIX curve completely tanked …

Then on Thursday, ahead of the long weekend, it only dropped marginally.

Is this the entire holiday season slowness already being priced out?

The answer is “partially” …

Clearly, the weeknd risk from the long weekend came out on Wednesday…

This is based on the lack of movement in the curve from Wednesday to Thursday.

But there is still a slow week ahead …

It is a full trading week, so we are not going to be pricing out a day off …

News can still happen, so we should not expect the normal long weekend based vol collapse.

But the week ahead is traditionally a time when the VIX falls.

But the VIX can still move up …

It did so in both 2018 and 2019, pre-pandemic.

My take is that we are likely to see the VIX fall early in the week (along with the VIX futures).

But the VIX hitting ‘oversold’ could 100% happen by Thursday and we could see an uptick.

The play?

Sell volatility early Monday, buy it back on Wednesday afternoon.

A simple play like a put-sale in S&P 500 (Ticker: SPX) is likely to work.

VIX or ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) puts could work as well,  but the high VIX of VIX (VVIX) could dampen returns.

Your Only Option,

Mark Sebastian