The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to swing.
Hey Traders,
On Thursday, the market looked like it was going to tank.
Bank earnings … really bad.
Producer price index (PPI) … really bad.
But after testing 3750, the S&P 500 (Ticker: SPX) caught a bid …
And VIX got SMOKED:
VIX closed near the lows of the day, and frankly, never looked bid.
Does this mean it can’t go up? No.
We continue to see massive orders saying VIX is likely to go higher.
You know about the VIX 35-75-strike 1-by-5 from several days ago …
Yesterday, we saw another massive trade in the November term:
On Thursday, a trader bought 95,000 November 50-70-strike call spreads.
The fact that hedgers have returned points to two things:
- The VIX of VIX, VVIX, is cheap.
- VIX is low enough that traders are wanting to hedge.
What does this mean?
A 20 VIX may be hard to break and VIX still has real potential to blow higher.
So what do you do?
The July 25-strike puts are dirt cheap … I am a buyer …
But I would hedge with the 28/32.5-strike call spread.
Your Only Option,
Mark Sebastian