A Play For Intraday Pops (And Long-Term Drops)

Mark Sebastian

The Option Pit VIX Traffic Light Is Red: Volatility Will Drop.

Hey Traders,

The Option Pit VIX Traffic Light is back to red; however, the last few weeks have been quite volatile.

The VIX even tapped over 25, and is STILL sitting over 18.

Yet, for those trading long volatility, pain abounds.

Let me explain what is going on, and how to profit …

Since September 2nd, the VIX is actually up nicely, about 2 full points.

Yet look at what ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) has done (the second chart):

In a period of time the VIX is up 2 points, UVXY is DOWN!

The lesson? UVXY can be played INTRADAY for a long volatility play … but holding it will only lead to tears.

Being short UVXY will pay though.

If you give yourself time, short vol has a very nice return profile.

The January 20-strike puts are about $6 — a nice value.

Your Only Option,

Mark Sebastian

VIX Edge

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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