Is The VIX Front-Running A Market Drop?

The Option Pit VIX Light Is Red, Volatility Will Drop.

Hey Traders,

In spite of the market more or less not doing very much over the last few days, the VIX has remained firm.

In fact, the VIX is sitting over 18!

Why is this happening, and will it last?

Here is what I am seeing …

Like I said, the VIX is over 18.


It is not like the S&P 500 (Ticker: SPX) is moving very much…

Check out the realized volatility of the SPX over the last 10 and 20 days:

Over the last 10 days the S&P 500 is moving about 6% annualized. Over the last 20 days, it’s still only 7.94%!

That means VIX is trading at roughly three times SPX actual movement over the last 10 days,  and more than twice the movement of the last 20 days.

When I say “VIX is expensive,” this is what I’m talking about.

What’s going on?

Take a look at SPX:

Since April, on EVERY regular options expiration week (the third Friday of the month) there has been selling.

Is the VIX trying to front-run this move for the first time?

It might be …

Here is the thing — the process of front-running the move might actually stop it from happening.


Because of the hedges driving VIX higher …

It’s hard to sell-off when everyone is looking for a sell-off.

With the selling over the last couple of days (a WHOPPING 20 points), I might look for the S&P 500 to be strong early next week instead of selling …

Of course, I could be wrong.

But VIX trading keeps getting positioned for the VIX to fall next week. 

Check out the open interest and trading volumes yesterday in September-dated puts:

We will see next week …

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Your Only Option,

Mark Sebastian

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