Strange Futures Following the VIX

The Option Pit VIX Traffic Light is Yellow: Volatility Is Going To Move.

Hey Traders,

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,

Mark Sebastian


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