The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to swing wildly
Hey Traders,
The VIX popped a bit on Friday moving up 3.78 points to close at 25.56
But, 25.56, is not all that high …
It is only pricing in a touch more than 1.5% movement a day…
This was on a day when the S&P 500 was down 3.37%!
So why didn’t it pop more?
It starts with the fact that the sell-off happened on a Friday and there is some natural weekend effect.
But more importantly, I think traders think they have seen this game before from the market …
We get a sell-off and the buy-the-dip-crowd jumps in somewhere around 4000…
This would also explain why we are still in a contango (VIX futures trading over spot VIX) and futures did not explode on Friday:
The key is today …
If today is as bad as Friday … or worse …
VIX is going to explode … potentially breaking over 30. (The S&P 500 is down just .27% at this writing.)
We will also see VVIX get off the mat and make a run at 100.
So how do you trade this?
Now that the VIX has made its first move, I like owning the 25-35 call spread for less than $2.00 …
I am a buyer of the September 23 puts which, were deeply in-the-money at the beginning of last week …
I think both could end up paying if we get a nice drop and a bounce …
Your Only Option,
Mark Sebastian