Are These VIX Options Too Cheap?

The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.

Hey Traders,

Today the S&P 500 (Ticker: SPX) managed to gain 2 points on Thursday.

The VIX on the other hand …

Got smoked.

The VIX was off 1.07 back down to 17.83:

VIX futures also felt some pain, although I would note they closed well off their lows.

So what does this mean?

Is the selling over, or is this a temporary breather?

The VIX is still way off the recent lows.

I think the key is the price action on Friday.

If we see a nice rally in the S&P 500, and we see the VIX drop, we are probably in the clear.

If we see more of what we saw Thursday …

I am not so sure.

If the market rallies and VIX rallies, there is no WAY this is over.

That being said, the short vol side of trading has gotten really cheap.

With the VIX at 17.83, the 16-strike puts are now $0.05.

These puts were $0.60 on November 4.

While they will probably end up out-of-the-money …

The 15, 16, and 17-strike puts are still all probably way too cheap.

I would be a buyer.

Your Only Option,

Mark Sebastian

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