On The VIX’s Terms

Hey Traders,

The Option Pit VIX Light is red … 

Oh yellow, it was short, but it was sweet …

As you can see, the VIX did NOT head to 30.

In fact, the VIX closed below 18 at 17.89.

My traffic light is now red again, but that does not mean the opportunity created Friday is gone.

Even though it only took one quick day for the VIX Light to switch back to red.


VVIX — which measures the volatility of VIX options — is still elevated, isn't it?

Yes, but it got smoked on Monday.

It looks like this is the beginning of several consecutive days of volatility of VIX falling…

More importantly though, check out what happened in VIX term structure:

July futures are trading at a huge premium to the cash … the rest of the curve though …

Pretty much normal.

Here is the good news … 

There is a TON of room for July to drop.

The blue top curve is where futures closed on Monday, the green line is where futures closed last Tuesday …

There is still a TON of room for the futures to drop, just to get to where they were trading last week!

VIX at the time was 17.02, and yesterday it closed at 17.89, so not too different.  

It's the futures term structure that held up on Monday (relatively speaking) …

If the VIX eases off back to 17, or maybe lower, over the next couple of days, the VIX futures are going to face SERIOUS pressure to drop to (or even lower than) last Tuesday’s levels …

This is going to crush ProShares Ultra VIX Short-Term Futures ETN (Ticker: UVXY) and iPath Series B S&P 500 VIX Short-Term Futures ETN (Ticker: VXX).

In my Volatility Edge program, we set up a short trade in UVXY at the 31-strike, expiring on July 2nd.

I’ve been playing the heck out of UVXY since it’s 10-to-1 split last month. You can even see a few of my trades here.

My 31-strike option above was already nicely profitable by the end of the day, but I am going to press a little bit because I think we are likely to see UVXY close below 30 or even 29 by Friday.

Your Only Option,

Mark Sebastian

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