The Option Pit VIX Traffic Light is Yellow: Volatility Is Going To Move.
The VIX has been stiff the last few days.
VIX futures though, have been unusually UNSTIFF.
Not from a movement perspective …
But from a VIX tracking perspective.
October expiration is starting to look really interesting …
VIX futures are not acting anywhere close to the way they have traded the last six months.
The futures are trading right on top of the VIX index … whether the index goes up or down.
With a week to expire, the October future is only trading $0.50 above the cash VIX.
You might say, “well, the VIX is high, so it should be close…”
But now that the VIX is back below 19, I would have expected the VIX futures to retain some fear of volatility popping back up …
But they are not behaving that way:
The October future is almost following the index step by step!
Could this be because we did NOT get the rally into this week, and the S&P 500 (Ticker: SPX) is soft?
Is it because skew is falling (like we noted yesterday)?
I do not entirely know, but I will point out that even at the lows for the day on Wednesday, the VIX could not get off the mat, and VIX futures stayed right with it …
So the question is whether or not a big vol fade or a big vol pop is in order.
With the S&P 500 already below the 50-day moving average, at this point, I think we have to put money on the fade.
I would be a buyer of the VIX October 18-strike puts for $0.30.
Your Only Option,