The Option Pit VIX Light Is Red, And Volatility Is Likely To Drop.
Hey Traders,
Last week there was a quick rumor that the CME Group might buy CBOE holdings.
CBOE popped on that news.
Trading at CBOE, in S&P 500 (Ticker: SPX) has been robust over the past few weeks.
Which is why when I look at VIX — the CBOE Volatility Index — I have to ask …
“WTF is going on here?”
Last week we saw the VIX pop over 21.
Then in short order, it came right back down to 17, and currently appears to be on the path to 15.
With that kind of movement, one would think trading in VIX would be explosive.
It isn’t.
Check out today’s volume numbers:
At 2:30 ET on Monday, VIX trading was not even at 200,000 contracts.
The open interest for VIX options is less than 6.5 million. To put that into perspective, usually it’s over 8 million contracts.
Daily average volume has fallen off a cliff …
It was 500,000 a few months ago, it’s now 400,000 … and falling.
So is opportunity lost in the VIX?
Is trading dead for volatility?
No. It’s not. Not by a long shot.
Futures volume is still nearly 100,000 a day …
It’s possible that maybe options aren’t trading as much because VIX has been SO range-bound.
For all the talk of “fear in VIX” and volatility, look at a three-month chart of VIX:
It’s been in mostly a tight range, with just a few pops sprinkled in.
And the pops have generally faded within 48 hours of starting.
Basically, VIX isn’t dead, but it is on a bit of a vacation for both hedgers and faders.
That said … I still see a ton of opportunity, ESPECIALLY on the pops.
I am not sure why more traders are not taking advantage of both the pops and the really steep VIX contango (futures trading progressively higher than spot VIX).
I certainly am, especially in my Volatility Edge program.
Currently, I am long the VIX September 18-strike puts and 17-strike puts — along with several other trades in VIX, ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) and iPath Series B S&P 500 VIX Short-Term Futures ETN (Ticker: VXX).
Despite the drop in volume, there is just as much edge to be found …
Heck, maybe more!
Which is why we’re offering a special Volatility Edge Quarterly+ membership until midnight tonight … you can find out more right here.
Your Only Option,
Mark Sebastian