The Strange Thing About A Normal VIX Curve

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


Hey Traders,


As you can see, the Option Pit VIX Traffic Light is red … barely.


We saw the VIX slip back into a contango (futures trading progressively higher over spot) on Thursday, with expectations that we could see a big up day on Friday (potentially).


What is interesting right now is that for the first time in a while, the VIX curve is NORMAL.


That’s right; the curve is where it should be.


What does this mean with the VIX still over 18, and the curve normalized?


You will want to know … Trust me …


Curve Is The Word


The VIX light is now red; this means volatility is likely to drop.


What pushed it yellow the last few days was the VIX curve …


But now, the VIX curve is completely normal:



VIX is 18.69 (too high) …


But more importantly, the VIX futures are normally spaced …


October is trading almost exactly 2 points above the cash, as it normally would with 34 days to expire.


November is where it should be …


Yes, December is low, but that seasonality is expected.


So what does this mean? Why is it important?


The answer is the VIX ETPs.


Watch the VIX closely over the next few days.


If VIX drops and the futures follow, and the curve stays about where it is (the futures do not widen relative to cash), we have some real opportunity to play short volatility.


If the VIX goes to 16 or 16.50, and the curve holds …


It is going to be a BLOODBATH for ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY).


We could see UVXY sub-20 by the middle of next week if the curve stays stable.


If the curve widens with the VIX falling, we are entering the same pattern we have seen the last six months …


VIX drops, futures hold, we sell off into expiration …


If the curve moves … we could be entering a new vol regime …


One that brings the VIX to 12 or 13 …


One that also opens up the possibility of a real correction (because the market won’t be over-hedged).


Today we could see a hard rally … we could have some clarity then (if I am right).


Your Only Option,


Mark Sebastian

Are We Past The Peak Of Fear?

The VIX Light is Yellow: Volatility Is Going To Move Wildly.


Hey Traders,


The S&P 500 (Ticker: SPX) had a strong day on Wednesday.


On Thursday, it opened lower …


But as we head into Triple Witching I am noticing a trend this week in the VIX.


What does it mean?  Where are we going next?


Here are your answers …


Headed For A Reversal?


The S&P 500 is down about 20 points as I write this…


The VIX is only up about 0.57 …


As for VIX ETPs and VIX futures … they are barely moving.


What is going on?


Let’s look at the S&P 500 and the VIX:



As you can see, even as the S&P 500 has been flailing over the last few days, the VIX is well off its top.


I think we are past the peak of fear …


As we head into Triple (or Quad) Witching on Friday, we are setting up for a big reversal.


I would not be surprised if the market rallies throughout the rest of the day with potential follow-through tomorrow.


I’m looking at cheap SPY calls that expire tomorrow. I am also looking at VIX and ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) as potential volatility fades.


Your Only Option,


Mark Sebastian

September Expired, Now What?

The Option Pit VIX Light Is Yellow: Volatility Is Going To Move.


Hey Traders,


VIX expiration was Wednesday morning.


All considered, it came in light at 19.79.


This despite a REALLY ugly day on Tuesday.


So now that September is off the books, what is next?


Wednesday was a strong day for markets,  I’ll have more on that tomorrow.


Today, the VIX futures settled at 19.79 … essentially the worst settlement for everyone involved in the product.


Almost all the open interest went out worthless.


The 15-strike, 16-strike, 17-strike, 18-strike, and 19-strike puts … all worthless.


The 20-strike calls … also worth nothing.


So what now?


Well, I have told you about the pattern we have been seeing in markets on expiration:



We are now at the point where the market is either going to rip higher, or we are truly going to break …


Wednesday’s price action says we are going to go higher.


Today, in my Volatility Edge program, I put out a trade buying VIX Oct puts …


I will also be putting out trades on ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) in the coming days.


Your Only Option,


Mark Sebastian

A $9M Big Bank Straddle (And My Piggback)

Hey Traders,

Once again, Wells Fargo & Co (Ticker: WFC) is making headlines …

And not in a good way (surprise surprise).

This time, however, it isn’t anything the banking and investment giant has done itself, per say …

But rather a letter sent to the Federal Trade Commission (FTC) from Massachusetts Senator Elizabeth Warren, calling for the breakup of WFC by separating its banking and non-banking activities.

Without directly addressing the Senator’s demands, WFC issued a statement essentially saying it has cleaned up its act in recent years, and is “a different bank today” than five years ago.

All Bark, No Bite

Frankly, Sen. Warren’s letter is unlikely to result in any real actions taken …

But WFC’s earnings report on October 14 could have real-world ramifications …

And one big-volume trader in WFC’s pits looks to be expecting a move …

Here’s how they’re playing it, and here’s a few hints about my own “piggyback.”

A Big Bank Straddle

Scandal-plagued WFC has certainly been under quite a bit of scrutiny in recent years …

Although you wouldn’t necessarily be able to tell it from its chart.

The shares are still a fair ways off their 2018 all-time high of $57.93, but they’ve recovered significantly from their COVID lows near $20, and a recent $250 million fine for “unsafe” practices in its home lending loss-mitigation program actually helped stem some of the uncertainty among investors, giving the banking stock a counterintuitive boost.

Chart courtesy of StockCharts

WFC is now sitting just below its 50-day moving average, which has recently served as a ceiling on several occasions, and could pose as resistance in the days ahead.

However, the Big Money trader in WFC’s pits yesterday won’t necessarily mind if it does … so long as WFC shares trend in the opposite direction …

Shortly after the open yesterday, someone with some very deep pockets purchased a very large WFC October-dated straddle, buying 22,0000 45-strike call contracts for $2.69, and simultaneously purchasing 22,000 45-strike puts for $1.24.

For those of you keeping track, that’s a hefty $8,646,000 outlay betting on WFC to “do something!”

This trade will be in-the-money once WFC hits either $48.93 or $41.07, representing either a 6% move higher or 11% move lower from Tuesday’s close of $46.05.

For those of you who watched Sunday’s video on delta hedging and how market makers can “pin” a stock, you might be interested to know this was tied to a delta hedge sale of 754,800 shares at $46.80.

What do the rest of WFC’s pits think?

While put open interest is significantly higher than usual (in the 98th percentile of its annual range), in general, options traders still seem to be more call-skewed, with both call volume and call open interest outpacing puts.

Looking at the October-dated contracts, in addition to the 45-strike this straddle-buyer seems to really like, the 47-strike and 50-strike calls are also seeing exceptional volume crossing the tape.

Now, like I mentioned, I liked this trade so much I decided to “piggyback” this trade … with a few adjustments, of course.

While this trader purchased their contracts for standard options expiration, I have very little interest in holding onto my contracts through WFC’s earnings call slated for the morning of October 14.

Therefore, I decided to make my own trade ahead of earnings, purchasing the October 8 expiration term.

Additionally, rather than making my move at the same 45-strike, I found a nearby strike that seemed to be more favorably priced. I was able to purchase my calls for about $1.45, and spent less than $900 total on six contracts.

Of course, I can’t tell you the full details of this trade … but I did send everything to my SharpBets subscribers, including a full video breakdown of the trade.

I’m hoping this trade will put my recent trade record to 6/6 wins … but I’ll have to wait and see.

If you’d like to receive my next SharpBets pick … you can still join me right here (but don’t spread this link around, we closed this quarterly offer to the general public a few days ago, and I’m only re-opening it until midnight!).

Whether you have $900 or nearly $9,000,000 on the line … I’m sure plenty of us will be keeping an eye on WFC to see if the banking behemoth will make any sudden moves over the weeks ahead!

Your Only Option,

Mark Sebastian

Have We Reached A Bottom?

The Option Pit VIX Light Is Yellow: Volatility Is Going To Move.

 

Hey Traders,

 

We are still at a yellow light … but barely.

 

We are in a high-leverage couple of days for the market.

 

Everyone is watching the Consumer Price Index,  and on top of that…

 

We have one trading day until VIX futures expiration, and only three trading days until S&P 500 (Ticker: SPX) and S&P 500 futures expiration (and their corresponding options).

 

This event is called Triple Witching (“quadruple witching” if you want to add in Equity options that afternoon).

 

One of the things people ask me is “What’s the deal with Triple Witching? Why is it important?”

 

Here is your answer …

 

Witch Way Will It Go?

 

Triple Witching is when SPX index options on CBOE, and index futures and futures options on CME expire at the same time.

 

It is a big day of trading every quarter.

 

Traders often ask me why it is so important.   

 

There are several reasons.

 

It starts with the futures …

 

Every single option market maker last week was hedged with S&P 500 futures expiring on Friday.

 

If they bought an option expiring in two years, they still hedged the delta with a September future.

 

Now that the September future is expiring, these traders need to ‘roll’ their positions.

 

Rolling futures can be messy.

 

It can be done in two main ways:

 

      1. Traders can execute a futures roll selling Sep and buying December.
      2. OR they can execute a ‘jelly roll,’ covering their September position using combos (synthetic futures created using options), and creating a new futures position in December combos.

 

This is happening at the same time that market makers are starting to get huge delta drift.

 

Delta drift is the change in a trader’s exposure to the underlying caused by the passage of time.

 

Think about it this way …

 

On Monday, the SPX Sep17 4500 calls expired with a delta of 30.

 

If the S&P 500 stays below 4500, by Thursday night, those options will have a delta near zero.

 

Over the course of the next few days, traders that are short those calls will have to buy futures to cover drift.

 

Traders that are long those calls will have to sell futures.

 

If the whole pit and upstairs market makers are positioned the same way,  there can be a race for the exit.

 

This is happening at the same time that all those rolls being executed are reducing September futures and options open interest, which reduces liquidity.

 

So we have traders all trying to either buy or sell futures at the same time liquidity is drying up.

 

That is going to cause an increase in volatility (similar to what we saw intraday over the last few sessions).

 

Now we are heading into Tuesday,  but the end of the day position in VIX will be mostly flat, and positions in September futures and options will begin to wane …

 

In addition, new positions in October, November, and December will start to take hold of what is happening …

 

This causes the market to stabilize …

 

Thus the pattern we have been seeing over the last few months begins to form:

 

 

This pattern is being exasperated by the skew index …

 

With traders bidding up cheap out-of-the-money options, the deltas of all those baby puts market makers are short are going to start to die …

 

Market makers will cover many of those cheap options (which is a smart move).

 

This will cause buying.

 

The same thing is going to happen with out-of-the-money and at-the-money calls where market makers are long.

 

This will also cause buying …

 

Thus, while Monday’s price action was weird, and we barely staved off five days of straight selling …

 

I am starting to ask myself if this is a bottom …

 

And if so, what is going to happen with VIX expiration on Wednesday?

 

And what will happen to the VIX futures curve?

 

The pink curve is where VIX futures were five sessions ago. The blue curve is Monday:

 

 

In that time, the VIX is up about 3 points … the October future …a measly $0.75. 

 

By the way, this is why we don’t automatically buy iPath S&P 500 VIX Short-Term Futures ETN (Ticker: VXX) and ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) in anticipation of VIX when the curve is wide.

 

The spread between October has gone from almost 4 points to less than 2 points … all because of the cash VIX.

 

If VIX falls, what will the future do?

 

And will the same pattern happen AGAIN next month?

 

Expiration is the 15th …

 

It’s not triple witching, but we do have some decent positions open in October …

 

Just saying …

 

With how we are down today …

 

I may very well be a buyer.

 

Your Only Option,

 

Mark Sebastian

Headed For A Sell-Off Or A Bounce Back?

The Option Pit VIX Light Is Yellow: Volatility Is Going To Move.


Hey Traders,


The Option Pit VIX Traffic Light switched to yellow, as the market continued its selling from Friday.


We are now coming into a Quadruple-Witching Expiration Week …


Now the question is…


Is it different this time?


Is the market going to keep selling off, or will it bounce back like it has for several months?


The VIX index is now over 20 again.


I have to admit I am a bit surprised it got this far, but it has.


The VIX itself has moved strongly …


The VIX futures curve? Not so much.


Why? Remember how we have been talking about the giant spread between the VIX cash and the VIX futures


That spread gave the futures a lot of cushion. We are only going to see VIX futures move if we get continuation today.



Despite the run in VIX, VIX futures are still trading at a healthy premium to spot VIX, excluding September.


But the little jump of VIX cash over the September future, along with a pop in the VVIX (the VIX of the VIX), VIX volatility, and a little change in VIX/S&P 500 (Ticker: SPX) correlation was enough to turn the Option Pit VIX Traffic Light yellow.


So what does this mean?


We are at a big inflection point:



The question is, will the pattern from the previous five expirations continue?


We will know if we get a bounce either Monday afternoon, or Tuesday.


I would LOVE to see us open down, and then pop.


Every morning jump so far has faded. My guess is that the opposite would lead to a rally.


For now, I am looking at short dated (September) calls to play a potential explosion in VIX Tuesday morning.


This would be a really short day trade, but could pay nicely.


Your Only Option,


Mark Sebastian

Why You Need A Trade Team

Hey Traders,

If you’ve been around here a while, you’ve probably heard me talk quite a bit about the importance of having a “trading mentor” – or at the very least, a handful of other traders that you talk to.

I’m pretty adamant that any trader who wants to truly trade like a professional needs to have a network of other traders to work with – if you were a trendy millennial, you might call it a “trading tribe,” or if you’re like me, you might simply think of them as “mentors” and “colleagues.”

But whatever you want to call it, there’s multiple reasons why I suggest having other people around you, and not just going it alone.

Today I’ll explain to you my experience with creating a trading “inner circle” as a pro trader, and how it can be beneficial to your trading.

The Boys Club

Now, if you were to talk to Licia Leslie (Option Pit’s own Queen of the Candlesticks) about her time working in the pits, it’s not unlikely she would use the term “boys club” at one point or another.

And it’s true. Props to Licia for breaking into the club and smashing glass ceilings during her time trading; I’m sure it wasn’t easy, but she’s a tough cookie.

However, the “boys club” isn’t entirely a bad thing – the “club” part at least.

See, professional traders start crafting their “inner circle” from the very first day they show up to work. It’s part of the job.

As a rookie, you’ll be assigned a mentor to show you the ropes, and hopefully keep you from making any mistakes that are too big, or too stupid.

My mentor was taught by his mentor (who just so happened to be our very own Andrew Giovinazzi), who was taught by his mentor, and so on.

There’s a sort of “passing down” of knowledge – and it isn’t the kind you get from just reading a book. It’s the kind you get from making mistakes, and being successful.

Not only that, but rookie traders are obviously going to network with other traders – of all experience levels.

This helps make the sometimes frantic, and sometimes cutthroat, atmosphere on the trading floor a little more manageable (everyone likes having a friendly face around) but it also helps you learn from other traders.

They’ll tell you about trades they’re making, going to make, didn’t make, or shouldn’t have made.

So on top of being schooled by your mentor, you’re also being schooled by your peers!

And this is a good thing.

It helps you become a better trader faster than if you were sitting in a room alone, learning from a book, and only learning from your own trades or mistakes.

And this doesn’t stop as you move up the ranks, either.

You’ll always have a mentor, and a network of trading friends for as long as you’re on the floor.

“Well that’s great,” you might be thinking, “but I’m never going to have a trading floor mentor, so how does this apply to me?”

I’m simply saying this to set the stage, and explain that professional traders are building their “inner circle” from Day 1. It is the first thing they do, and they never stop doing it throughout their careers.

Why Can’t We Be Friends?

Of course, not every “professional” trader starts out on the floor. In fact, probably most don’t (especially these days).

But the same concept of “learning from your circle” applies.

It applied to me when I changed employers, and it was something I kept in mind when I started my own hedge fund, Karman Line Capital, and it was a consideration when I was building up my crew here at Option Pit.

That’s why we have such a variety of specialists here.

We’ve got myself and Andrew, who are both seasoned volatility and options traders (Andrew’s got 8 million contracts under his belt).

Then we have Bill Griffo, our “Income Hunter.” He traded in the Treasury Bond pits back in the wild inflation trading 1970s, and his specialties include commodities, bonds, and currencies.

I’ve already mentioned Licia Leslie, who is a chart reading whiz. She’s “Queen of the Candlesticks” and can spot a chart pattern like few I’ve ever met. I’m not much for technical analysis myself, but she makes it work, and her track record is outstanding.

Last, but certainly not least, we’ve got Frank Gregory. Frank grew up in Washington DC, networking with the Capitol’s elite from an early age (we’re talking Supreme Court Justices in his living room) before making a name for himself as a lawyer for some of the who’s who in DC. He then went on to work as an executive at a multi-billion-dollar Wall Street firm, so his specialty is “K-Street” – or where Washington and Wall Street meet.

You can see I’m not just stacking the deck to favor one specialty or another.

And there’s a reason for this.

It’s because it increases the idea flow here at Option Pit – and means I have a wider variety of information and trade ideas coming in, which in turn improves how and why I’m trading myself.

This is where a lot of retail traders get stuck – if you aren’t looking outside your “normal” realm, you’re really limiting your potential.

I don’t know the intricacies of how Wall Street and Washington interact, but I sure as heck can make a trade out of one of Frank’s ideas! (That’s actually what our Capitol Gains program is about – using Frank’s ideas and Andrew’s options expertise to trade. See? We practice what we preach!)

Another huge benefit is having other traders to work as a “second set of eyes” on your trades. I can’t tell you how many times Andrew has talked me down from the ledge, and prevented me from making what would have been, in hindsight, a terrible trade.

It’s unavoidable we’re going to get emotional about our trades. It’s the nature of the game, no matter how rational you try to be – nobody is perfect.

But it sure helps when you can bounce ideas off of someone that doesn’t have a horse in the race, and can offer an objective opinion.

So what can you do to avoid getting stuck in the “one trader rut”?

Expand Your Horizons

At this point, I think the answer is obvious: find other traders and start networking. Pick their brains. Find out what is working or not working for them.

But where?

It’s easy to build a network when you’re working around other traders on the floor, or building a company specifically for trading.

But for “normal” traders out there, there are other ways to get the job done – now more than ever, thanks to the huge number of online trading communities popping up.

However, I caution you very strongly over jumping into the first crew you find.

As I’m sure you know, all traders are not created equal.

And finding the first guru who pops up as a targeted ad on your Facebook feed is NOT the best way to find your own mentor.

Don’t even get me started on getting your trading advice from Reddit. Yeah, you might get lucky, but for the most part, finding actual good ideas and wisdom on there is like finding a needle in a haystack.

It’s also not a great idea to join the first Discord or chat group you find, and immediately start following other trader’s advice.

Plenty of people like to think they know what they’re talking about … but in my experience, few actually do.

So what should you do?

First, I recommend narrowing down your focus – what do you want to trade? Options? Penny stocks? Are you more of a day trader, swing trader, or buy-and-hold?

Then, take your time. Look around, and do some research and reading, and notice names that pop up time and time again.

See where they’re available, or who they network with. Who do they learn from, where do they get and share their ideas?

Follow that trail.

Or … I can save you that work and just tell you to join us here at Option Pit.

Our Pro program offers daily live access to the mentors here at Option Pit, and 24/7 access to other members through our live chat group. Plus, you have access to all the trade recommendations from our full line-up of services.

You can find out more about Pro right here, but I recommend calling  888-872-3301 to talk with our Customer Service Team to answer all of your questions (and probably give you a discount). They can be reached Monday through Friday from 9 a.m. to 5 p.m., but you might be able to catch someone at the office if you call on the weekend …

We’ve also got plenty of other services to choose from.

And here’s the thing – every service we offer includes LIVE access to an Option Pit pro.

There is a reason for that.

It’s because having access to mentors – like the team here at Option Pit – is really key to trading success.

I told you how I’ve had mentors since Day 1 on the trading floor, and to this day I still use the folks here at Option Pit, and in our Pro chat, to bounce trade ideas off of, learn from, and get trading inspiration from.

That’s why I’m adamant about being sure all of our members have access to live trading and interaction.

Because it gets better results.

Of course, I’m not telling you all of this just to shill my own program.

I’m telling you this because I am showing you I practice what I preach, and I like sharing these same advantages with you.

And if you aren’t into the crew here at Option Pit? Hey, that’s fine. (I mean, sort of …)

Read our free content, and do your due diligence to find a mentor that is experienced and proven for you to learn from and follow.

And don’t be a hermit; find some trading friends. It makes the whole journey a lot more fun (and hopefully more profitable) — I promise.

Your Only Option,

Mark Sebastian


How This ETF Can Practically Print Profits

Hey Traders,

Lately I’ve been scoring some big wins on large caps, of all things …

It isn’t every day that big-dollar stocks lend themselves to beautiful options trades …

But my SharpBets program has been knocking it out of the park, with wins like +62% on Walgreens-Boots Alliance (Ticker: WBA), +75% on Walmart (Ticker: WMT), +71% on Macy’s (Ticker: M) … I could go on.

If you want in on this win streak, click right here. I’ll tell you more about my winning system for picking trades — and how you can apply it to your own portfolio …

Now, as great as these large-cap slam-dunks have been … as you probably know, I’m really a “vol guy.”

I can’t help it – volatility is what I love, and there’s so much money to be made from it once you know the ins and outs!

For example, I recently scored an 81% win on the volatility derivative “ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY).” 

Before you let the name get you freaked out … relax.

I’m going to walk you through this volatility ETF.

I’ll explain what it is, and how, with the right timing, I can practically print money trading it!

(Seriously, you’re going to want to read this.)

Ready? Let’s dive in!

UVXY, You Ain’t Got No Alibi

Now, to understand ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY), you need to have a basic grasp of the VIX and VIX futures.

The CBOE Volatility Index (Ticker: VIX), as you probably know, is a measure of implied volatility of S&P 500 (Ticker: SPX) options.

It’s referred to as the market “fear gauge” because when traders are anxious about what’s to come in the market, they like to hedge with SPX options.

This hedging increases the demand for SPX options, and increases the implied volatility priced into SPX options.

Which, in turn, causes the VIX to rise.

I was actually in the room for the “birth” of the VIX, and I could go into way, way more detail … but I’ll save that for another day! (Or subscribe to my free VIX Edge newsletter and I’ll send you a rundown of the VIX every trading day!) 

Thinking About The Futures

VIX futures, just like any other futures contract, allow traders to speculate on where the VIX will be at a specific time in the future.

So, for example, if the VIX is currently trading at 18, and you think there will be more volatility by VIX futures expiration, you could purchase a VIX future at 20.

Here’s where things get interesting.

VIX futures MUST be equal to cash (or spot) VIX by the time they expire.

(By the way, VIX futures expire on one Wednesday morning each month, and expiration is based on the Tuesday close. This Wednesday is September VIX expiration.)

However, going into expiration, we often see futures trading above or below the actual VIX.

This is actually great, because if I see VIX futures are trading $2 above VIX spot price a week before expiration, I know these futures must drop to meet the VIX within the next week (unless, of course, the VIX rises).

Of course, if the opposite were true, and VIX futures were trading $2 below VIX spot, I’d expect to see either the VIX fall or futures rise.

I track VIX futures relative to VIX spot by looking at the VIX futures curve.

The green line is VIX spot, and you can see each futures contract trading increasingly higher above spot VIX.

This is called a contango.

(If futures were trading below VIX spot, this would be backwardation. It is less common than contango, but it does happen.)

Now, this brings me to UVXY (finally, right?).

UVXY provides 1.5 times leveraged exposure to the S&P 500 VIX Short-Term Futures Index, which tracks the near-term VIX futures contracts.

Essentially, UVXY is long 1.5 times the VIX futures contract that is 30 days from expiration.

So, if we know that VIX futures are in a contango (higher than the VIX) …

And must be equal to the VIX by expiration …

Then we know that UVXY, which tracks these futures, will also fall.

Now, of course, don’t get me wrong – the VIX can and does unexpectedly spike (like we saw Friday), so making a bet on UVXY to fall isn’t a “sure thing.”

Plus, of course, sometimes the pricing of UVXY options will make it difficult to trade this phenomenon profitably.

However …

In general …

Chart courtesy StockCharts

You can see that UVXY certainly isn’t a “buy and hold” type of investment … to say the least.

Just a few months ago, UVXY underwent a 10-to-1 reverse split that took its share price from $4 to $40.

Now, it’s already sitting back in the lower $20s, and I wouldn’t be surprised to see the ETF near $10 in the next few weeks.

Of course, just like with anything else, it’s easy to get over confident and get burned on UVXY. I do it all the time.

But with a little bit of skill, and a little bit of luck, this ETF can be used to practically print money!

Lately, we’ve been seeing an extra-wide gap between VIX spot and futures as we near expiration.

(I wrote all about it in VIX Edge last month.)

This is great news, because it gives me plenty of opportunities to profit by playing VIX derivatives like UVXY, and VXX (which also tracks VIX futures).

But of course, you need to always use caution, because days like we saw yesterday can obliterate otherwise well-played UVXY trades.

If you want to learn more about how to trade UVXY, and the VIX more broadly, I recommend subscribing to my VIX Edge newsletter. It’s free, and it isn’t uncommon for me to call out specific contracts I’m trading, and what I’m watching with volatility every day.

But if you take nothing else out of this article, please just remember this: do NOT try to buy and hold UVXY.

I can all but guarantee it will end badly.

Your Only Option,

Mark Sebastian

Looking Ahead: Next Week’s 2 Big Events

The VIX Light is Red: Volatility is likely to Drop.


Hey Traders,


We are heading into a big week next week.


We have two big events that are going to change the scope of markets for the next two weeks.


And they involve both the VIX and the SPX and expiration …


These two events are:

 

      1.  VIX expiration. September is rolling off, October is coming on.
      2. Quadruple witching: the expiration of S&P 500 futures and futures options,  expiration of SPX index options,  and expiration of SPY.

Over the last five months we have seen a pretty strong pattern:

 

 

Bottoms of small sell-offs come the week of expiration …

 

But something is a little different this time …

 

We ALREADY started to see selling this week.

 

The S&P 500 (Ticker: SPX) is off about 50 points this week,  a little over 1%.

 

With that the VIX has popped …

 

Why?

 

Expiration.

 

Positions by option traders in both VIX and SPX can push these indexes around.

 

But once they are done, the SPX pops and the VIX drops.

 

If we do touch the 50-day moving average in the S&P 500 we could see another 1% down …

 

But I think smart traders are seeing this pattern and front-running it.

 

I think we are going to open down Monday, and then potentially rip higher.

 

This would kill the VIX, and cause SPX to move toward new highs.

 

SPY Sept. 17 450-strike calls cost about $1.78.

 

I think they are a nice play either heading into the weekend, or early Monday morning.

 

Your Only Option

 

Mark Sebastian