The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up.
Hey Traders,
The Week of June 19 was an absolute mess for the S&P 500.
We saw the S&P 500 close below the ‘bear market’ level essentially the whole week.
Yet, VIX only got to about 35 at its highs.
We could be in the throws of a slow ugly move lower, intermixed with some sharp buying.
But…
Maybe things COULD get bad quickly…
I saw something on Friday that certainly raised my eyebrows …
Here is what I saw and what to do right now …
After that …
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VIX Not Flying Sky High
The VIX hit a high on June 13 of just over 35.
Despite the S&P 500 having a VERY rough week, it never came close again.
The high for the rest of the week came on Thursday when the ol’ fear index hit 34.82 mid-day.
This failure to launch l during one of the worst weeks for the S&P 500 in recent memory…
What this looks like is post Sept. 11, when the S&P slowly died over the course of several months and the VIX kind of did nothing.
One thing that has made it feel especially that way has been the total interest of VIX option traders …
Until Friday.
On Friday, we saw a massive VIX call spread trade:
A trader bought-to-open the VIX July 50-60 call spread.
Until this trade, almost all of the huge orders in VIX of late have been in the 75s, 80’s and 100s.. It’s the type of trading credit portfolios use to reduce blowout risk on some sort of Covid 2.0 crash.
But this trade …
This is reasonable!
Are hedgers back?
If so, does this mean they are buying stocks or protecting new assets?
Either way, a trade this big that actually could come into play is an eyebrow raiser.
I think you want to be long and hedged.
I’m thinking of the 35-45-55 call fly as a buy and hedging it by buying the July 25 puts.
Your Only Option,
Mark Sebastian