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The Option Pit VIX Traffic Light Is Red: Volatility Is Likely To be Stable or Drop.
Hey Traders,
The VIX got a nice pop on Thursday.
With the S&P 500 having a more than 100 point range, we saw the VIX move from below 20 to settle at 22.68 …
A pretty nice move.
The swings in VIX have been impressive, and it has led to the volume of one VIX ETP volume drastically increasing in that time.
UVXY used to be 2X the move of iPath S&P 500 VIX Short-Term Futures ETN (Ticker: VXX).
Then after the 2018 Volpocolypse, UVXY dropped it to only 1.5X VXX, reducing the leverage.
It maintained dominance because it was still the “big move” volatility VIX ETP out there …
Check out the five-day chart of 2x Long VIX Futures ETF Fund (Ticker: UVIX):
As VIX was dropping last week UVIX, which is 2x leveraged VXX, was tanking …
Then with a single day of S&P 500 tankage, the ETF exploded.
Having a product that can move this much creates massive opportunities for traders. This is why the ETF has already approached 1 million shares traded …
A VIX ETF, less than a month old, trading nearly a million shares, is a big sign for this product.
It is going to steal a ton of volume from UVXY.
Pay attention to it.
Now, I do not know if the market is going to sell off all day today.
But if you want to take advantage of volatility rips, the best way is to trade UVIX.
On the other side, if VIX is tanking, owning puts or being short is going to pay extremely well.
In a normal market this sucker is going to decay like a beast!
We are in a relatively low vol bear market right now.
When we do get the rips higher, jump in this one from the long side.
When that stops … puts in UVIX are going to pay nicely.
Your Only Option,
Mark Sebastian
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