Three-peat: Is the VIX Done with 20?

The Option VIX Light Is Red, and Volatility Is Likely to Drop.

 

Hey Traders,

 

That is three days in a row under 20 for VIX.

 

Wednesday’s close of 19.23 is the lowest for the VIX since *checks notes* Feb. 21, 2020.

 

That’s the day before the Covid meltdown started.

 

 

That’s right … we are getting to pre-pandemic levels in the VIX.

 

I think an 18 VIX is next, followed then by a slow grind back to 12.

 

And a few institutional buyers agree with me.

 

Today we saw action on the April 20, 19, 18 and 17 puts …

 

But the biggest trade of the day took place in July.

 

A customer bought 10,000 of the VIX July 15 puts for .07

 

 

I LOVE this play!

 

The buyer is spending $70,000 to bet that by July we will be back to a normal VIX (a VIX sub-15).

If the VIX gets to 13 or 14,  the customer is in line to turn $70,000 into $1 or  $2 million.

 

That, friends, is not a bad risk/reward.

 

What makes this trade work well in a product like VIX — and what this customer is betting on — is reversion to the mean.

 

The VIX has been high for north of a year. (And it seems like even longer than that.)

 

The MODE for the VIX — the whole number it trades the most in — is 12.

 

With July four months away, and given the current trends, VIX could EASILY get to those levels by the mid-summer doldrums.

 

Here Little Piggyback

 

This is a trade I might be interested in piggybacking.

 

An alternative with better odds and a slightly higher cost would be the July 17 puts for .25.

 

It costs a touch more — but has an easier time winning because it is closer to the money.

 

The Option VIX Light Is Red, and I expect you to DIE, MR. VOL!!

 

Your Only Option,

 

Mark Sebastian

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