The Option Pit VIX Light Is Red, And Volatility Is Likely To Drop.
Hey Traders,
Last week we saw the S&P 500 (Ticker: SPX) make a run at new all time highs, just barely missing a new all time high close by about two points…
The last time that happened, the market took a dive …
Are we heading for the same outcome?
Is this a double top?
Big money has an opinion …
Here is what the smart money thinks …
With the SPX closing just two points away from an all-time high, I’m sure there are a lot of traders out there wary of the market hitting a double top.
But …
That’s not the way Smart Money (aka institutional money) is trading.
On Friday, as the S&P 500 was approaching an all time high we saw a really busy day in the VIX, trading over 700,000 contracts.
What was crazy is that it was on a 1-to-1.6 ratio of calls to puts.
That means for every 10 calls that traded, 16 puts went up.
And these trades were not small in size.
The eight biggest trades that went up in VIX on Friday were all puts … and all July dated!
Here are the top four …
On the day, there were over 90,000 17-strike puts traded.
BIg volume went up across the board in July-dated puts…
What does this mean?
I think the smart money is playing for the VIX to fall below 15 by the 4th of July; a thesis I have held for the last two months.
The general trend in VIX continues to be down as volatility subsides.
I would be a buyer of the July 15-strike puts, and maybe even the July 14-strike puts for $0.05 ($0.05 is a pretty inexpensive play on dropping volatility).
Because the VIX looks like it is set up to take a fall …
Your Only Option,
Mark Sebastian