Why VIX Futures Got Slammed

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

Hey Traders,

Volatility had a soft day on Monday.

With the weekend effect taken into account, I have the real movement in the VIX down about 0.70.

Volatility futures, though, got SLAMMED.

Take a look at the across-the-board drop in the futures curve from Friday to Monday:

Front month futures dropped 0.75 in November and 0.80 in December …

A nice plastering of volatility.

This is why iPath Series B S&P 500 VIX Short-Term Futures ETN (Ticker: VXX) and  ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) were down so hard.

However, it is not over yet …

With the VIX at 15.25, and the front month future at 18.45, we still have massive contango in the front month and second month.

If VIX falls much further, or even just sits, we could see the November future below 17.5 by Friday.

What does this mean?

Puts in VIX are going to have an easier time than calls (then again, they almost always do).

UVXY could drop below 15 by Friday, and VXX could be below 20.

If you do want to hedge, the VIX Nov 19-24 call spread is cheap.

Your Only Option,

Mark Sebastian

It’s Not Too Late To Short VIX

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

Hey Traders,

One of the questions I am getting a lot right now is:

“Is it too late to get short VIX?”

I mean, VIX is all the way down to 15, so it must be too late … right?


Here is what to do …

The VIX is now 15.20 as I write this.

Many traders are worried it's too late to trade VIX to the downside …

Here is the good news: it isn’t too late.

Yes, the VIX is 15.20, but where is the November future?


That is more than a three-point premium, with only three and a half weeks left to go.

And traders are taking note.

The biggest trade today is the November 16-strike put and December 17-strike put:

Take note of a trader buying about 20,000 of the November 16 puts for $0.33,

These win if the VIX stays where it is today, and can clean up even more if the VIX drops.

And remember, with SKEW starting to soften, the path for a sub-15 VIX is now clear.

Your Only Option,

Mark Sebastian

Are We Headed Toward Volmageddon Pt. 2?!

Hey Traders,

There’s about to be a new VIX ETP on the block …

But how “new” is it, really?

The SEC gave the go-ahead for two new VIX ETF’s to begin trading …

But for those of you who remember “Volmageddon” in 2018, these “new faces” might look pretty familiar …

In fact, except for a few small tweaks, these are essentially inverse vol ETPs back from the dead!

However … one of the “tweaks” in particular is ESPECIALLY exciting to me, and I plan to make some BIG profits with these new vol products …

Here’s the two VIX ETF’s that got a makeover, and why I’m so excited to trade them.


Now, before we dive into the specifics of the new ETFs, we need to talk about what happened with their predecessors …

And the part they played in 2018’s “Volmageddon.”

Let’s start by looking at VIX exchange traded products (ETPs).

After all, you’ve probably heard me talk about ETPs like ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) and iPath Series B S&P 500 Short-Term Futures ETN (Ticker: VXX).

These are two of my favorite “easy money” ETPs to trade … when the time is right, anyway.

VXX offers exposure to short-term VIX futures, while UVXY offers 1.5 times leveraged exposure to short-term VIX futures.

Typically, we can count on these ETPs to move lower.


VIX futures must equal the VIX index by the time they expire, and during normal market conditions, VIX futures trade above the VIX index. 

So that means that we can usually count on VIX futures falling as they near expiration.

Therefore, we can assume that an ETP that provides exposure to VIX futures will also fall …

And it does!

When adjusted for all the reverse splits (one of which we just saw this past May), UVXY used to trade at the equivalent of $2 million!

… It’s currently at $17.58.

Of course, it’s not always a clear-cut downtrend. When you look at the day-to-day of the chart, there are definite pops and drops that makes trading UVXY not quite as simplistic as it sounds.

And just so you see UVXY isn’t a one-off, here’s VXX:

You see it still has the same general downtrend (with the occasional vol spike).

In the years leading up to the 2018 vol spike, markets were relatively calm …

The S&P 500 was on a steady trek higher, and the VIX was maintaining low levels.

Sure, that chart might look anything but calm, but notice how the high is only in the mid-17s!

That’s a low VIX.

So with a low VIX, VIX futures are going to fall into expiration …

So naturally, an ETF that allows you to profit on a low VIX would be the perfect way to rake in some extra money!

But … UVXY and VXX fall. They certainly aren’t a “buy and hold” type of deal. You can definitely profit off of them, but it’s typically through more active trading like put options.

So someone had the bright idea to offer INVERSE VIX ETPs.

In other words, the same way you can count on UVXY and VXX to go down, a product that offers inverse exposure, you should be able to count on going up, right?

The inverse of VXX was VelocityShares Daily Inverse VIX Short-Term ETN (Ticker: XIV), which allows investors to essentially short VIX futures — sounds like an easy way to profit in a calm market, right?

Well, like every other “easy money” trading strategy … it works until it doesn’t.

And Volmageddon is what happens when it doesn’t.

Self-Destructing In 3 … 2 … 1 ….

In February of 2018, markets had been coasting on cruise control for quite some time, and volatility was similarly mellowed out.

Then, on Friday, February 2nd, markets started to slide, and traders got worried …

Nothing too out of the ordinary …

But by Monday, the market rout truly started, and the VIX popped a whopping 115% in a single day:

This was a HUGE problem for the inverse volatility products like XIV, and a handful of others.

What could have been a brief market correction turned into a historic sell-off, with the S&P 500 experiencing one of its fastest 10% declines in its history …

And inverse volatility products, including XIV, ProShares Short VIX Short-Term Futures ETF (Ticker: SVXY), and VelocityShares Daily 2x VIX Short-Term ETN (Ticker: TVIX) plunged by 90% or more in a single day.

One of the big causes for this self-implosion XIV had to do with its Trade At Settlement (TAS) method of rebalancing.

Essentially, in order to rebalance at the end of the day, XIV and other inverse VIX ETPs had to purchase huge amounts of front and second month VIX futures.

This sudden surge in demand caused futures to rocket sky-high … thus forcing XIV to buy even more.

This vicious cycle caused XIV’s value to plunge from $1.9 billion to a mere $63 million essentially overnight.

While a handful of inverse VIX products — like SVXY and TVIX (which was delisted in 2020) — were able to modify their inverse exposure and survive, XIV was shortly after closed by Credit Suisse, leaving investors to swallow huge losses.

But now … XIV and TVIX are rising from the dead.

Guess Who’s Back?

VelocityShares has decided it can’t leave well enough alone (I’m partially kidding …) and after getting the green light from the SEC, it is reviving two of the riskiest VIX products the market has ever seen …

With a few modifications, of course.

This time around, both products will be Exchange Traded Funds — ETFs — so they’ll be based on actual underlying assets, unlike ETNs.

And to prevent problems like Trade At Settlement procedures, which encourage traders to get in and out of positions by a cutoff time, these new ETFs will use volume weighted average pricing to help smooth out sudden spikes and dips in the market, and prevent the self-destructive cycles like we saw in 2018.

Now, what I’m interested in is the fact that these are ETFs …

Because ETFs have options, and I FULLY plan to trade them!

Like UVXY and VXX, I’ll be able to practically print money with these vol products, given the right conditions!

And with options, we’re not taking on the full risk of owning shares of these ETFs outright … which, as you just saw, is a HUGE benefit.

Before you get too excited, remember, like any volatility ETP, these products should be “handled with caution” and you must use strict risk-management if you want to trade them.

I also recommend having a very firm grasp on volatility, the VIX, and VIX futures if you want to dip your toes in as well.

However, I fully plan on making some big bucks with these things, and I will keep you updated as we get closer to listing!

Your Only Option,

Mark Sebastian

Have Your VIX Cake And Eat It Too

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

Hey Traders,

VIX closed at 15.01, its lowest close since the pandemic began.

This is big news, but it might only be the beginning …

Yes, we are in the midst of earnings season,  but the VIX does not seem to care. As I stated multiple times, the lack of put-buying is allowing the VIX to finally fall.

But suppose you are worried about imminent doom?

What If I told you …

You can have your cake and eat it too.

Like I said, on Thursday the VIX closed 15.01, its lowest close since February 2020.

Then, after the bell, Snap Inc (Ticker: SNAP) took a big dive, pulling some mega-caps with it.

Suppose you are looking at this market and actually worried about a sell-off.

(We are not there yet, but hey, people have differing views, I am cool with that.)

Here is the problem you face in hedging. VIX futures are still REALLY expensive:

November futures are still around 19 …

That is a massive four point premium.

So the way to hedge is not to simply just buy calls that will probably lose.

But what if you bought a strangle instead?

Take a look at November options at the close on Thursday:

The November 17-strike puts (that I told you to buy for $0.40, and then $0.55) are trading about $0.75. That means they have about $1.25 of embedded convergence decay in them.

If I buy the 19-25 call spread, I will pay about $0.80.

If I put the two together, I end up with a hedge that I am paying for if the VIX stays low.

Like this idea?

You should. It's a good one, and the type of trades we do in the Volatility Edge and the Volatility Trading Club all the time. (Call us at 889-972-3301 to find out more about that!)

You could swap the 17-strike puts out for puts in ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) if you wanted, but the idea around this hedge is pretty solid.

Your Only Option,

Mark Sebastian

What’s A Trader To Do In November?

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

Hey Traders,

The VIX October expiration happened on Wednesday, settling at a post pandemic low of 15.35.

Now that November is the front month …

With the VIX in the 15’s …

What is a trader to do?

Here is the plan …

With October settling at a post pandemic low of 15.35, we move on to November.

October was unique in that it was the first time in a long time that cheap, out-of-the-money puts,  or even near-the-money puts, settled IN the money …

Can the same thing happen in November?

There is some work to do.

The November future is currently VERY expensive:

The spread between the cash and the future sits at about 4 points.

That is REALLY wide.

With the SKEW index normal, we could see VIX stay here for a while.

Even with a small sell-off, it could be hard for VIX to truly pop.

So what is a trader to do?

I can tell you what many traders were doing…

Buying the November 15-strike puts for $0.10.

Check out the volume on the 15 and 16-strike puts in November:

On a busy VIX day, the most active strikes were cheap puts … interesting.

That said, I see more value in the 17s.

The 17 puts went for $0.55.

This means that the premium is more than $1.00 in-the-money relative to the cash.

The 15s are actually out-of-the-money, and we have settled below 16 ONCE. 


At $0.55, the 17-strike puts are relatively cheap and nicely in the money …

I am a buyer.

Your Only Option,

Mark Sebastian

My November VIX Trade

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

Hey Traders,

Wednesday morning October VIX futures expire.

As we head into November there is a huge question: is VIX going to 12 …

Or back to 20?

The VIX has been stubbornly above 15 for 19 months now.

Believe it or not, Tuesday’s close of 15.70 was fourth lowest close since the pandemic began:

But this time it is different.



The cost of out-of-the-money puts continues to be a LOT lower than it was the last time the VIX got this low.

Take a look at this chart of the CBOE SKEW index:

In June and July when VIX got low, it was because the market was going up.

The natural construction of the index was driving it lower.

Now, on top of the natural construction of the index, options themselves are getting cheaper.

The next time the S&P 500 gets to a new high, we are going to be dealing with a very different VIX …

One that wants to go lower, because puts are not overly-bid.

Why is this happening?

Because hedging hasn’t worked.

When hedging stops working, the big money tends to get a little lazy, bored, and impatient.

They move on.

This is what is going to allow the VIX to go lower..

Now, with the VIX November future as expensive as it is …

The current 4-point premium of November futures over cash could quickly diminish to the normal 2-3 points.

The trade? I am a buyer of the November 17-strike puts.

Your Only Option,

Mark Sebastian

Yesterday’s Trades Are Up +200% and +100%

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

Hey Traders,

Yesterday I told you about two trades that you could look at into tomorrow’s VIX expiration.

These options did not go unnoticed …

Heading into expiration, VIX October options are extremely active.

Here is what is going on …

If you bought the VIX October 16-strike puts for $0.05 yesterday, you are currently up about 200% on those puts.

The October 17-strike puts I pointed out that cost less than $0.50? They are up 100% too.

But, they might not be done …

The VIX options expiring tomorrow morning are extremely active.

Check out the volume on the 16 and 17 puts today:

At the pace they are trading, the 16-strike puts will do 50,000 contracts today, and the 17-strike puts probably close to 40,000.


Because there is a lot of juice left in the October future:

With $0.50 of premium, if the VIX stays around 15.70 we can expect the October future to drop below 16.

This will put those 16-strike puts over $0.25!

I would also like to point out there is a nice premium baked into November as well; do not be surprised if that starts to fall off as well.

There is a lot of money to be made on VIX for those willing to grab it!

Your Only Option,

Mark Sebastian

2 Trades To Make Before VIX Expiration

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

Hey Traders,

The VIX October future expires on Wednesday morning.

Heading into expiration, I can see some interesting expiration plays that could be nicely profitable.

As we head into October expiration, this  month is shaping up to be potentially a new settlement low for the VIX.

Here are the monthly settlement prices for VIX futures and options so far this year:

VX/U1 – 2021-09-15:   19.7900

VX/Q1 – 2021-08-18:   18.5800

VX/N1 – 2021-07-21:   18.9000

VX/M1 – 2021-06-16:   16.3800

VX/K1 – 2021-05-19:   25.2100

VX/J1 – 2021-04-21:   19.2800

VX/H1 – 2021-03-17:   20.8000

VX/G1 – 2021-02-17:   22.8100

VX/F1 – 2021-01-20:   22.5900

With the VIX now below 17, we could be inline to settle below June’s low of 16.38,  in the 15s if the market can stay strong…

With that in mind, I was looking at VIX options and saw a couple of inexpensive option plays for October that could pay off nicely …

Let’s start with the October 17-strike puts. They are currently $0.45, and the VIX is 16.50.

That trade, if it expired today, would automatically make $0.05…

But here is the kicker: if the VIX does get below 16, these puts will more than double.

I am potentially going to pick up a couple of these today.

Speaking of cheap …

Take a look at the 16-strike puts, they are .05.

While we might not settle below 16, if I buy 100 of these for $500,  and VIX can manage get into the mid 15’s, these puts will go up by about 3-5 times …

Not a bad pay off for a cheap bet.

Your Only Option,

Mark Sebastian

Is The VIX Going To Pop Today?

The Option Pit VIX Traffic Light is Red: Volatility Could Fall Further.

Hey Traders,

Technically, the light went red on Thursday morning, but I do not like to switch things until after the close.


Because we have seen A LOT of VIX intraday turnarounds, along with the S&P 500 (Ticker: SPX).

But we are red now …

The last few times we have gotten to red, VIX has almost immediately perked up.

So what is the story this time?

Is VIX going to pop on Friday?

Here is what I see …

On a day the VIX got smoked …

The VIX index options actually showed some life, in terms of volume:

Calls traded above their average volume, puts traded almost TWICE their normal volume!

The ratio of puts to calls was 1.3 to 1.

So what does this mean?

Traders are positioning for the VIX to potentially fall further …

Remember, the SKEW index is no longer insanely bid.

The last time the VIX got low, look where SKEW was trading:

Skew was about 20 points higher than it closed yesterday …

That leaves the VIX more room to drop.

I think if we are able to stay green for a few days, we could see a new post-pandemic low for the VIX.

Now let’s look at the large block trades:

It’s all puts, along with some aspirational calls (the Nov. 75-strike calls) and one normal call purchase (the Jan. 25-strike calls).

There was a lot of buying of the Nov. 17-strike puts again.

Frankly, the Oct. 17-strike puts exploded higher yesterday as well (remember when I told you they were too cheap for $0.15?).

Obviously, we have a lot of uncertainty, but we seemed to have a shift on Thursday out of the chop from the last few weeks …

I am looking for more upside on Friday in SPX, and a potential sub-16 close for VIX.

Your Only Option,

Mark Sebastian

Breaking The Pattern & Breaking The VIX

Hey Traders,

We got the market rally we have been watching for today …

It looks like the six-month “expiration week drop” pattern in the S&P 500 (Ticker: SPX) may, in fact, be breaking …

And of course, we got the vol drop I have been waiting for.

Where do we go from here?

I’ll tell you what I think is next …

Over the last six months, we have been used to seeing the week of standard options expiration be the softest week of the month for the S&P 500 (Ticker: SPX).

But … the expiration week drop in September didn’t see a subsequent rally, so I wanted to see if October expiration would bring yet another leg lower for the markets…

Or if we could actually see some bullish action into expiration.

And as you can see from today’s large white candle, it looks like we are getting a “pop” and not a “drop” this time around.

The S&P 500 is now sitting back above its 50-day moving average for the first time since September 27.

And the VIX finally gapped lower on today’s SPX rally, and is currently trading below 17:

VIX futures are still closely tracking the index, even with the VIX dropping 9% today:

What should we expect to see tomorrow?

Will the market rally?

Will the VIX fall?

I think the answer is probably “yes.”

I expect to see the S&P continue its move higher …

And I would not be surprised to see the VIX break below 16 tomorrow.

The October 18-strike puts I mentioned yesterday at $0.30 are currently bid at $0.70.

Your Only Option,

Mark Sebastian