The Option Pit VIX Light Is Red, Volatility Will Drop.
I do not know how to say this any other way …
VIX, VIX futures, and VIX options …
Are all REALLY HIGH right now.
But, you may be wondering, the VIX is sitting right at 16 …
Isn’t that low?
Not by this measure…
The VIX is trading just above 16.
In the context of the last year, that is certainly low.
But remember, the last year is far from the entire story of the VIX.
Back in 2017, VIX traded below 10.
Quite frequently, in fact.
This is VIX in 2017. Notice it NEVER traded over 17:
It had a low print of 9.22.
I’m telling you this because I want to put things into perspective.
The VIX can go lower.
And right now … it probably should, because the VIX is way too high, and VIX futures are even worse.
Take a look at movement (white 10-day and blue 20-day historical volatility) in the S&P 500:
In the last 10 days, it has moved at a clip of about 7.50% annualized.
The 20-day (blue line) is not much better at 7.92%.
In fact, we have not had a 10 day stretch of movement break 16% in the last three months …
The SPX simply is not moving very much.
Based on where we are trading, the VIX should be about 12 … MAYBE a little higher because we have non-farm payrolls on Friday.
So when people ask me why I like VIX puts so much the answer is simple: the VIX needs to drop.
VIX futures, which are trading at huge premiums to cash VIX, are even worse:
There are seven trading days left in the September future, and it is trading almost 2 full points above VIX…
Usually, it would be closer to 1 point by now.
We could see a blood bath post non-farms tomorrow, as we head into a long weekend.
Your Only Option,