How Long Will This Crazy Vol Last?

The Option Pit VIX Traffic Light Is Green: Volatility Can Go Up.

Hey Traders, 

The Option Pit VIX Traffic Light is green … but for how long?

Thursday saw some crazy trading action.

On a day that Apple (Ticker: AAPL) could not get off the mat and the Invesco QQQ Trust (Ticker: QQQ) was only mildly positive, the Russell 2000 (Ticker: RUT) and the Dow Jones Industrial Average (Ticker: DJI) both had huge days.

So now the question is … how long will vol stay high?

Win Some, Lose Some

On Thursday, the Dow Jones Industrial Average and the Russell 2000 took off.

The QQQ? Not so much. 

The Nasdaq 100 (Ticker: NDX) was also pretty lethargic most of the day.

This is directly related to the mega caps being overbought (notably AAPL), and some issues going on at ARK Innovation ETF (Ticker: ARKK) funds.

ARKK appears to be in redemption hell, which is why its major holdings cannot get off the ground.

But even so, the S&P 500 (Ticker: SPX) managed to close up about 1.5%, and the CBOE Volatility Index (Ticker: VIX) closed lower … albeit still sky high.

However, traders seem to think the omicron scare is close to running its course.

How do I know?

Check out December put volumes in VIX:

Over 100k of the December 22-strike puts traded, mostly bought.

These are traders setting up for the fade.

If we see a VIX below 20, those puppies are nice winners.

So what is a trader to do?

With the Option Pit VIX Traffic Light still green, I am not all about getting massively short volatility …

But a hedged short position makes sense at this point.

And let’s talk about ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY).

If the VIX is lower on Friday, UVXY could get crushed.

Yet, take a look at the UVXY options expiring on Friday:

At about $0.65 the Dec. 3 20-strike puts are entirely too cheap, given how much UVXY can drop in a single day.

If VIX goes to 24 on Friday, UVXY will approach breaking 18.

Your Only Option,

Mark Sebastian

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