The Option Pit VIX Light Is Red, and Volatility Will Drop.

Hey Traders,

Average daily volume in the VIX has ticked up to about 510,000 contracts per day after running below 500k for a few weeks there.

This increase in volume is firstly bullish stock on the CBOE.

However … Wednesday was NOT a busy day.

VIX options traded 359,755 contracts — well below the average daily volume.

And It could have been much worse …

But there was one month a group of strikes was active — VIX June puts.

Check it out …

Between the June 17, 16 and 15 puts, 100,859 options changed hands.

Almost all of these options were purchased by institutional customers, mostly in large block size.  

The biggest trade of the day was a buy of the June 16 puts for .29, the second was a buy of the 15 puts for .15.

The largest trading in puts outside of June was the May 17 puts, which also saw an influx of buyers. One trader alone bought 9,300 of the 17 puts for .44.

So what does all of this mean on a Federal Open Market Committee (FOMC) day?

The answer: Traders continue to position for the VIX to drop. 

In the May expiry, the only contract that has over 100,000 open is the 60 strike (good luck!).

Puts, on the other hand, have open interest exceeding 100,000 contracts on the 23, 21, 20, 18, 17 and 16 strike.

In June, open interest is over 100,000 on the June 50s (again, good luck) and the 16s and 15s.  

This type of trading action points toward an impending collapse in VIX to sub-15.

What’s It Mean for Me? (And You!)

Guess what? This would play directly in my hands!

Traders in the beefed-up Volatility Edge program know I bought the May 15 puts for .10 and .05 and that I am long the June 20-17-14 put butterfly.  

This also plays into the hands of the VXX trade I have been discussing over the last couple of days.

I fully expect them both to win. (And there’s still a chance for you to join me.)

Because Option Pit VIX Light Continues to Blare Red, and Volatility Is Very Likely to Drop.

Your Only Option,

Mark Sebastian