Traders Still Fading VIX

The Option Pit VIX Light Is RED, and short volatility is likely to work in the coming weeks

Hey Traders,

I wrote last week about a trader bought more than 100,000 March 18 puts for .10

Today, we’re seeing similar action in March.

This time, traders are coming for the 19 puts paying .12 …

And they have gone up in pretty large blocks of  6,000, 6,200 and 8,000.

On the day, more than 18,000 March 19 puts have traded. Check it out …

Retail paper doesn’t normally buy options in blocks of 3,000, or even 1,000 …

This is 100% institutional paper buying based on the bid-ask spread …

If this was retail, we would have seen a lot of small trades for .12. Instead we saw the large blocks above, which means “big money” was buying puts.

So while these might appear to be YOLO (you only live once) plays, the size of the blocks indicates they’re large institutional trades.

The Takeaway

What does this mean given the selloff on Monday and Tuesday?

Well,  if you look at the way VIX is behaving — it’s kind of anemic given the 100-point drop in SPX — I think the message is clear …

This selloff may have a day or two left in it, but when it ends…

I think the VIX-above-20 trade ends with it.

If we can get back to the highs near 3920, I think the VIX is heading to 18.

So, I’m still a buyer of puts in VIX and have I those positions on in our Volatility Edge product, which is designed to execute timely trades that take advantage of the VIX’s momentum-style movement.

Speaking of which …

The Option Pit VIX Light Is Red, and we expect the VIX to fall.

Your Only Option,

Mark Sebastian

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