The Option Pit VIX Light Is Yellow: Volatility Is Going To Move.
Hey Traders,
The VIX is up, but ProShares Ultra VIX Short-Term Futures ETF (Ticker: UVXY) and iPath Series B S&P 500 VIX Short-Term Futures ETN (Ticker: VXX) are down …
How does this happen, and how can you profit?
Let me explain.
A lot of people see VXX and UVXY as moving with the VIX.
That is not always the case, and this next week could be a perfect example of this behavior.
You see, the VIX futures curve is super-expensive right now, relative to the VIX itself:
Between today and next Tuesday, the VIX August future has to drop 1.6 points.
Normally by this time in the month, that spread is only about 0.60-0.75 point.
The September future is also wide relative to the VIX.
It is trading almost 4 points above the VIX cash index …
This would normally be about 2.5 points at this time.
So what does this mean?
Over the next week, the VIX could run back to 18, and UVXY and VXX could still lose money …
And if VIX drops, and moves to 15, UVXY and VXX will be a bloodbath for longs, and a goldmine for those that are shorts.
We executed a trade in UVXY today in Volatility Edge, and it was already profitable an hour later …
I expect it to completely clean up, because without a SERIOUS sell-off in the next few days, UVXY has nowhere to go but down.
Your Only Option,
Mark Sebastian