The Option Pit VIX Light Is Yellow: Volatility Will Move.
Hey Traders,
On Thursday, the S&P 500 had a pretty strong day …
The VIX sold off, but it didn’t tank …
The recent trend for the VIX, though, hasn’t really broken …
The general trend is still heading higher …
When will this end?
I have some clues for you …
The Option Pit VIX Light is clearly yellow now. Despite Thursday’s SPX rally, the overall trend for the VIX has not changed.
Over the last month or so, the S&P 500 is essentially flat (okay, marginally higher).
The VIX, however, is way up!
We are in a volatility swell, but it’s not like the one we saw in March 2020, or even August 2020.
This is a mini-mini-swell that may not even produce a full green light in the VIX Light by the time everything is said and done.
But what it is producing is a ton of volatility.
When will it end?
Probably within the next couple of weeks.
One trader specifically seems to agree, and made a pretty big bet that we would at least be back to April volatility levels by mid-June.
Take a look at the trade below:
This trader bought June 20-strike puts, and sold twice as many of the June 18-strike puts, paying a net total of $0.29.
This means that as long as the VIX settles between 19.71 and 16.29, this trader walks away a winner.
Personally, I like this play and I think it is extremely reasonable.
I might even piggy back this trader in the form of a bearish butterfly.
But then again, I did buy some June 17-strike puts on Wednesday (like I talked about in yesterday’s VIX Edge).
With the VVIX — aka the VIX of the VIX — elevated, this is a nice play to take advantage of the VIX coming off, and the subsequent VVIX drop.
But for now, the VIX Light remains yellow.
Your Only Option,
Mark Sebastian