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