A Mini-Mini Swell

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

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