A “Lehman Moment?”

Yo Pit Crazies,


VIX was really moving on Monday.


Our Pro Chat room was moving, too, and inside I will highlight some of the actionable ideas that members produced throughout the course. 


If you want money-making idea flow, the latest market conditions, real-time breakdowns of special situations and even old-fashioned, solid buy-write insights — all in a community trading setting — the Option Pro Chat Room is the place for you. Call our Customer Care team at 1-888-872-3301 to get in.


So, China said they might let a property company with $300 billion in liabilities go under.


I saw “Lehman Moment” bandied about on Twitter.


The sky is falling, and we’ll make heads or tails of it.


I don’t keep the TV on during the day, as I prefer just to look at price and vol action. 


My favorite thing to watch in times like these is this …


The Vol of Vol 


Take a gander at this chart you will see what I mean …


VIX 5 day chart with one-minute candles and vol of vol on bottom. Oct IV for VIX is red.


Note the persistent bid for implied volatility (IV) in the VIX. The demand for options steadily increased all Monday. That is generally bullish VIX and IV in general.




No, it’s not a Tom Cruise action movie franchise.


It is my next favorite signal, the VIX curve.


When the short-term futures are above the longer-term futures (as in the chart below), VIX is usually going higher.  Note this does not extend to every VIX future.  Only the first three futures are upward sloping.


      • M1 is Oct VIX
      • M2 is Nov VIX
      • M3 is Dec VIX


Note below that the back month is still above the rest of the futures, which is normal. Full backwardation is when all the futures are higher than the future just one term later in expiration.


VIX futures curve for Sept. 20.


As we went into the close on Monday, I saw a partial signal. Namely, that VIX was going up, but not with the velocity of a plus-30 selloff (at least as of late yesterday). This was a good time to take upside VIX call profits. 


If I see the VIX curve start to get into full backwardation, we could see 4,100 or lower in the SPX this week.  

The Lesson: Volatility is a great signal for short-term traders and helps long-term traders make good entry points. You can pick that up in our Pro Room, where our community makes sure you never have to trade alone.


The Rundown

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 


The Pro Room was mostly looking at new setups with higher volatility. Mark’s AAPL idea from Friday is a good sample:


      • Jason F. with ideas coming in today:
        • sto $dkng oct 55 p for 1.71
        • offering out some $F 12.5 for 0.51, no takers yet
        • filled $uvxy 24sept/1oct 23/21 for 0.03


      • Cat opened this trade into the close:
        • BTO $HOOD Oct1 39p for 1.45 


      • Ken A. has a play on realized vol in china:
        • BTO Oct FXI 42 calls paired with 38/32 put verticals on 2:1 ratio $1.50 per combo


Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.

The Option Pit VIX Stop Light Is Yellow, and VIX could well be north of 30 by Tuesday afternoon.


I closed parts of two Volatility Trading Club trades yesterday, but I’m looking for a bit more upside overall in VIX. I sold some SPY Oct. 01 440/430/420 puts for a 75% average return and looking to close the VIX puts for similar returns on a move back to 17 VIX


Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!


To Your Trading Success,


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