The Option Pit VIX Traffic Light Is Yellow: Volatility Is Going To Make Wild Moves.
Hey Traders,
Despite the big market drop on Monday, and the pop in VIX, the Option Pit VIX Traffic Light light is still yellow.
Could the VIX touch 30? It sure could …
Could it drop back below 20? It could do it in a day if the market calms down …
So what is going on with VIX, and how do I play it?
Here is what Big Money is doing and how I am jumping on board …
Despite the market being down big on Monday, most of the paper in VIX is in puts!
Check out the top 10 option trades through 11 AM ET:
Of all the big trades, only one is calls, and that is in the short-dated December term.
The big trades are all put spreads, outright puts, and put ratio spreads.
An especially interesting trade: a customer bought the Jan. 20-strike puts 5k times, and sold 15k of the 18-strike puts, executing a one-by-three for an $0.18 credit.
This is a nice trade if you think VIX is going to drop, but not tank.
The 5,000 Jan. 16-strike puts were just an outright buy, and Feb. is seeing all kinds of bearish paper:
Throwing out December, the curve is STILL in a contango …
This shows that the market is still not at any type of peak fear.
We could see buyers step in tomorrow and the VIX tank, based on the paper going up. This does not appear to look anything like March of 2020.
So how do I play this?
For starters the 20-strike puts expiring Wednesday are $0.10, there is value in those.
Looking at January, the 20-strike puts cost $1.00, and the 27-32 call spread costs $1.00 as well. I like that as a pair.
Your Only Option,
Mark Sebastian
