The VIX Hits 1,000,000

The Option Pit VIX Light Is Red, And Volatility Will Drop.

Hey Traders,

Thursday marked the lowest close for the VIX since the pandemic began, with the “fear gauge” closing at 15.48.

But here is the interesting part …

Thursday was one of the most active trading days for the VIX we have seen in weeks.

VIX traded over one million contracts! (As opposed to Monday, where only 216,000 VIX contracts crossed the tape!)

But it wasn’t traded the way you think it might have been …

The day before the highly anticipated non-farm payrolls report gets released, the VIX closed at a new post-pandemic low of 15.48.

With the non-farms report coming out on Friday, I would expect to see the VIX close even lower on Friday. As I’ve been saying, I see a potential breach of the 15 mark in our future.

But what is interesting is that Thursday ended up being one of the busiest trading days for VIX in weeks.

VIX traded over 1 million contracts:

And, even more interesting …

You might notice the call-to-put ratio there.

That’s not a misprint. Calls outpaced puts by a ratio of 4-to-1!

But take a look at the trades:

The biggest trade of the day was a huge backspread roll.

The customer that was long in the September 30-60 call backspread on a ratio of a little over 4-to-1 unwound that backspread, and then put the same spread on November — again, at a ratio of about 4-to-1.

We also saw some heavy trading of out-of-the-money calls in July and in September.

In fact, we don’t hit puts until the ninth trade down on the list!

So what does this mean?  

The big trade of the day involved the customer moving his or her hedge back by two months.

I interpret this as the customer believing that we are not likely to see fireworks in the VIX for the next couple of months …

This falls into our narrative of the VIX continuing to fall over the coming weeks.  

We have earnings season starting at the end of the month. That could bring some action, but traders appear to think things will be docile.

A trade that makes sense to me —  one that we have on in my Volatility Edge program — is to buy some cheaper out-of-the-money puts in ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) or iPath Series B S&P 500 VIX Short-Term Futures ETN (Ticker: VXX).

I won’t give specifics … I gave you a good idea yesterday, and you can see some of my recent trades here … so I am going to keep this next one secret for a couple of days …

Unless you are a client.

Your Only Option,

Mark Sebastian

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