The Option Pit VIX Traffic Light Is Red: Volatility is likely to slide.
Hey Traders,
The S&P 500 closed up 53.25 points on Thursday, the VIX closed up .62 points to 14.50.
In fact, the VIX was up all day … and take a look at a tick chart of SPX over VIX:
You should notice something important.
The VIX did its hardest rallying not when the S&P 500 was dropping, but when it was rallying.
When the index stopped going up or fell, the VIX actually backed off.
Why would this happen?
Well, there are two things that are evident:
- When the S&P 500 rallied, traders were chasing calls.
- This is a short squeeze right now.
When VIX goes up on a hard rally and moves most on upswings, it means that shorts are hedging and longs or FOMO traders are chasing calls.
This is almost always the sign of the market topping out.
Now it might not be on Friday, as that’s quadruple witching … but it‘s coming. And it’s probably going to be a stronger sell off than some imagine, potentially back into the 4100-4250 range we sat for months in March-May.
And guess what? Say it with me, folks …
Straddles are still too cheap!
While they did tick up, the straddle for Tuesday the 20th is about 40 dollars:
Like I said – too cheap.
Questions about that? Leave a comment below!
Your Only Option,
Mark Sebastian