The Option Pit VIX Light Is Red, And Volatility Will Drop.
Hey Traders,
I am on vacation right now … well, another “working” vacation.
While I am working most of the morning, after 1 p.m., I am frequently checking the markets.
Thus, I have to admit, when I pulled open my phone and the S&P 500 (Ticker: SPX) was up 9 points, I was a bit surprised …
Why?
Because most of the day, the S&P 500 was acting like it wanted to drop …
That said, I guess I shouldn’t be surprised that the VIX has been pretty anemic over the past week.
Even so, the VIX did not close at its intraday lows on Monday …
And VIX futures were actually flat on the day …
So where to next?
Monday was one of the slowest days in the pits for the VIX of the year …
On the day, only 216,000 contracts traded …
But the VIX itself was interesting to watch.
At one point, it looked like it was going to take off, almost touching 16.50 …
But in the end, it did nothing.
Ending the day slightly down, if you adjust for the weekend …
So what now?
We are heading into a long weekend, which is going to drag on the VIX.
But will it create a drag on VIX futures?
Take a look at the curve:
The spread between cash and the future is currently sitting at about 2 points.
Historically, this is already wide for still having over three weeks to go until expiration … but recently, it’s about normal …
Over the next few days I am expecting to see the VIX drop significantly. I think we are talking about 14.5 VIX!
The futures, however, not as much…
If the July future gets to 17, I would be surprised..
Even so, that is going to put a big weight on VIX ETPs (exchange traded products), and to a lesser extent, VIX futures.
I’m looking for ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY), which closed Monday at 27.51, to hit 26 …
I’m also watching for a sub-28 iPath S&P 500 VIX Short-Term Futures ETN (Ticker: VXX), which closed at 29.15 …
And I’m looking for VIX futures to 17 by Friday.
There are cheap put options out there, for savvy traders …
Traders that are members of Volatility Edge will see my trades this week …
Along with the first of five special bonus trades from our Option Pit Commodities Expert Bill Griffo … See what I’m talking about here.
Your Only Option,
Mark Sebastian