The VIX Drop is Lagging and Here’s Why

BY MARK SEBASTIAN 

August 8, 2023

 

Hey Traders, 

 

Yesterday, the S&P 500 closed up 40.41 points to close the day at 4518.41.

 

The VIX closed down on the day nicely settling at 15.77. Remember, if we consider weekend adjustment, Monday was a pretty decent down day.

 

All is not right though …for bulls, yes, the market had a nice rebound.

But here’s the thing: even with the drop, the VIX was not buying the rally.

 

“Wait,” you might say, “VIX futures were down…”

 

Yes, but they were trading on top of VIX itself…despite having more than a week to expire.

 

This is a sign of a market that is walking on eggshells.

 

Take a look at the curve:

VIX futures are still sitting on top of the VIX index.

 

And the September futures are less than 2 points higher than the VIX index…

 

Despite the relatively low VIX this is almost always a sign that there is a move coming.

 

The spread between SPX realized vs implied is the highest it has been since November of last year…

 

And we know how that went:

So what do you do?

 

In my Trading Desk service, we are trading strangles for some pretty nice dollars … that will continue to work.

 

It can be hedged with VIX options.

 

Not a member of my Trading Desk service? Send us an email at [email protected]. If you reach out and say you read about this post, they have a deal for you for the next quarter ahead. 

 

Questions about anything? Leave a comment below!

 

Your only option,

 

Mark Sebastian

Mark Sebastian

Founder & CEO, Option Pit

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Mark Sebastian

Mark Sebastian

Mark Sebastian is a former member of both the Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX), where he spent years mastering the art of options trading in the most competitive environment imaginable. As Chief Investment Officer at the hedge fund Karman Line Capital, Mark manages sophisticated options strategies for institutional clients. He is the author of two highly regarded books on options trading: ‘The Option Traders Hedge Fund’ and ‘Trading Options for Edge.’ Mark is a frequent guest on major financial networks including CNBC, Fox Business News, Bloomberg, and First Business News, where he provides expert commentary on market volatility and options strategies.

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About the Author

Mark Sebastian

Mark Sebastian

Former CBOE floor trader and CIO at Karman Line Capital. Author of ‘The Option Traders Hedge Fund’ with over 30 years of options trading experience.

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