New VIX Regime Means New Opportunities

The Option Pit VIX Light Is Red, and Volatility Is Going to Drop.


Hey Traders,


With the VIX at 17, we are in a new volatility regime.


Here is the crazy thing…


… a HUGE number of the traders out there have never traded in a lower volatility market.


Think about it …


The giant wave of retail Robinhood traders that joined the part of the past year just assumes that a 20 VIX is normal.


But a 20-plus VIX is not normal. A VIX below 15 is.


When we last were regularly in the 15s, option volume was less than 20 million contracts a day …


Now it is averaging 40 million!


With the VIX now in the 17s, it’s a sign that we are starting to see this market normalize …


The market is returning to its 2018-2019 form that I’m very familiar with but, again, most traders are not.


Back in Time


So what is the VIX going to look like, and more importantly what will volumes look like …


Let’s hop in the Wayback Machine …


This is what open interest looked like in April VIX of 2019:



Look at the open interest in calls!


At the time, the VIX was 13.18.


There were 100,000 or even 200,000 or 300,000 contracts open on 12 strikes above where VIX was trading …


Puts all concentrated in 5 strikes, the 14s through the 12s.


That is the exact opposite of what OI looks like now …



In April 2021, there are exactly two calls that have over 100,000 OI and 17 put strikes …


This is going to change — and we need to adapt.


As the volume changes, my trading will as well …


I’ll be forming new trades that take advantage of normal volatility….


And with all this new option volume, expect more frequent VIX spikes.


For now, I am looking for the VIX to continue to drop …


I’m a buyer of the VIX April 16 puts for .15,  as I think they could blow up like the 17 puts have.


Remember, we were looking to buy the 17s for .05 or a .10. They are now .40.


I think the 16 puts could follow a similar path.


The Option Pit VIX Light Is Red, and Volatility Is Going to Drop.


Your Only Option


Mark Sebastian

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