The Option Pit VIX Traffic Light Is Red: Volatility is likely to slide.

Hey Traders,

The VIX closed at 14.16 on Wednesday up .48 points – adjusting for the weekend, it’s roughly unchanged..

But this is a far cry from its push toward 12 that it was making only last week.

So what gives?

Remember, the holidays can cause VIX to get oversold. Clearly, that’s what happened last week when it pushed into the 12s.

This was something we discussed.

But now that we’re through this, where to next?

Let’s start with the VIX curve:

With two weeks to go and a spread of 1.2 points, it’s at fair value. This means that it’s possible to make money shorting UVXY and/or VXX again because the curve SHOULD start moving toward the cash index.

But that doesn’t mean there isn’t value. On Wednesday, I mentioned that the DIA strangle was too cheap.

Well, it’s not just DIA – SPX is also way too cheap.

The ATM straddle for Monday is 39 dollars … 39 dollars! 

We opened down over 20 on Wednesday. If a trader manages the straddle and shorts UVXY, they are going to profit.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian