The Option Pit VIX Light Is Red, and Volatility Is Likely to Drop.
Hey Traders,
ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) listed options on its reverse-split pricing today…
This is the beginning of what will likely be one of my best trading weeks.
Why?
Two things happened today …
I told you about UVXY yesterday, and how I have big plans for trading it (I actually did two trades in UVXY today alone!) …
In addition, there was a big change in VIX that will make UVXY trading even easier…
UVXY listed options on the new reverse split prices!
This is hands down one of my favorite times to trade.
It sets up so many opportunities in both the near and long-term for playing UVXY short.
Reminder, UVXY is one of the best shorts, but …
When it gets to $4 (like it was before the reverse split), it becomes a lot harder to make money, because the stock simply can’t lose a high enough percentage of its value.
Now that it’s $40 dollars …
Er, make that $35 …
There are about 100 put trades that make sense!
Why do I know these will be profitable trades?
Here is UVXY since the March peak:
But …
One thing that had me worried going into the reverse split was the VIX itself.
The Option Pit VIX Light has been yellow for three weeks, as we have been in a mini-volatility swell.
But that ended today …
I have changed my VIX traffic light back to red!
All four of my indicators have switched to red.
The long holdout had been VIX correlation to the S&P 500 (Ticker: SPX).
But now that has normalized.
SPX is in an uptrend, and the VIX is now flat with it’s mid-April levels (and likely going lower).
The VIX futures curve, my most important indicator, are in a healthy contango, meaning VIX futures prices are subsequently higher, and above cash:
June has a lot of wiggle room to move lower … July even more!
VVIX (volatility of VIX options) has fallen off, and so has VIX volatility:
The white line is 10-day VIX volatility, the blue is 20-day, and here you can clearly see the downtrend.
The red line is VVIX (VIX option implied volatility) and it is back to recent lows.
So, with my light red, that means I am in the clear to be leaning short on volatility, and UVXY is the perfect instrument for it …
In fact I already did a trade in my Volatility Edge program that is up over 50% today …
I have another tomorrow, and then on Tuesday in a one-hour session I will have three trades for my Volatility Edge Subscribers:
-
-
- One really short-term
- One intermediate-term trade (about a month)
- And a long term “set it and forget it” trade (6-12 months to expire)
-
I’ll reveal these on Tuesday … But you must be a Volatility Edge member to receive them!
The Option Pit VIX Light Is Red.
Your Only Option,
Mark Sebastian