The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
Hey Traders,
The S&P 500 had a weak day turn “meh” on Friday.
The index tried to break 4100 on multiple occasions, but then just like all the weak volume days, the “buy the dip” crowd came in.
It’s happened again and again over the last few weeks.
Just check out the price action from the previous week (the week of the 10th):
In each of the days the week of May 10th, there was a bout of selling … that ended up getting bought.
Most of the week, it was because of the NDX – which truly has been bulletproof.
The reason? Check out Friday’s post.
But not all is well when we look at the price action – there is a seller out there.
And we’re seeing a surge in VIX option buying as well.
VVIX is back over 100:
It rallied most of the week and has been in an uptrend.
There is a violent move coming up or down. I think it could be down, but it might be up.
The cost of an entire week’s straddle for the week of May 19 is only about 53 dollars.
That is WAY too cheap given the intraday movement we have seen and even when looking at the week’s range from the 10th.
Unless realized volatility is going to crater … near dated options are way too cheap.
I would buy the straddle for this week and go short VIX via May put options that expire on Wednesday. They give the trader real exposure to movements in the cash VIX for the next 2 days.
Questions about that? Leave a comment below!
Your Only Option,
Mark Sebastian