Did Volatility Really Drop Today?

Yo Pit Crazies,

Just when you thought stocks would look ugly, inflation saved the day.  

What changed?  

Did Pres Joe solve the port crisis with all the full container ships?

Is the Fed going to taper?

Is Congress going to spend $3.2 trillion?

To be honest, I don’t think any of these questions have been answered fully … at least not in a “settled way,” as the new parlance goes.

Let’s see what vol and VIX had to say.


First, VIX and Volatility are not exactly the same thing

And what’s the difference, you say?

The VIX measures the volatility of many strikes of S&P 500 (Ticker: SPX) options 30 days out, and specifically every strike with a bid (on a rolling 30-day average term).

Volatility at the strike is just that: the implied volatility (IV) at the particular strike.

If you note the snip below, volatility at the new SPX at-the-money (ATM) strike did not go down … it actually went up a bit. (IV is the red line.)

SPX Nov.19 4435-strike call IV and price

VIX was down 1.79 on the day even with some volatilities flat. I did note that some downside puts had a small drop in IV per strike, so most of the VIX’s down performance came from there.

I think the big inflation slowed down the potential taper action, and caused a temporary relief among traders. At least, that’s what I’m seeing in the out-of-the-money (OTM) calls.

Also, the 16 handle tends to see the VIX bounce like a rubber biscuit so far this year, so watch out.

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

The Pro Room was taking some VIX put profits today.

      •  Ken A  12:44 PM STC Nov. AG 12/13 call verticals posted Tuesday +37%

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle trading vehicle. The goal is to teach students the best times to buy options.

      • I am looking to close out my Walgreen’s Inc (Ticker: WBA) Jan. calls tomorrow for a nice return on the whole trade.
      • As for my ProShares UltraPro Short QQQ (Ticker: SQQQ) strangle, I will be lucky to close for a scratch, but I did get a few cents out of the puts today.

Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.

The Option Pit VIX Light Is Yellow. The VIX of the VIX, VVIX, is still above 100, but the VIX curve is dropping back into contango (futures trading progressively higher than spot) and we are seeing the teens for VIX this week.

Mark closed the VIX Oct.20 18-strike puts for a 90% gain today in Volatility Edge. He is looking at some cheap November-dated puts now.

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

To Your Trading Success,



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