Up Or Down, Which Is It?!

Friday morning is quadruple witching.

We typically expect some wild moves the week of expiration, especially with the Federal Open Market Committee (FOMC) meeting coming on Wednesday …

But the truth is, we can get more information about what is going to happen from the VIX paired with the SPX than either index by itself.

Here is a two-day tick chart of the SPX over the VIX:

On Friday, the VIX closed at its lows, and the SPX at its highs.

On Monday, the same did not happen…

We saw the SPX close on the lows, but the VIX itself was well off its highs…

Why?

A couple of reasons.

For starters, we have seasonality hitting us in the face right now.

VIX is going to have trouble getting a bid with Christmas just 12 days away.

But I think the greater reason is that traders were not really selling this sell-off.

Yes Apple (Ticker: AAPL) aapl got soft…

But interestingly the Russell 2000 (Ticker: RUT) and ARK Innovation ETF (Ticker: ARKK) both closed WELL off their lows.

We could be at the beginning of a small risk-on rotation out of the mega-caps, and into some of the small caps.

Heck, if not for AMC Entertainment (Ticker: AMC) and GameStop (Ticker: GME) it is entirely possible the Russell 2000 could have maybe got some legs at the end of the day …

But it didn’t.

So the question is … who is right?

Friday or Monday?

Based on the lower VIX I would say Friday. Remember, we also had some Weekend Effect hitting the VIX on Monday …

The real increase in VIX was less than a point, adjusted for the weekend …

This makes me think any pop in ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) is a fade…

Right now UVXY is losing about $0.16 a day theoretically in decay …

That is $0.64 in four days. If the VIX falls back toward 19 or lower, UVXY will be below 14 …

The 15-strike puts cost $0.75, not a bad calculated risk.

Your Only Option,

Mark Sebastian


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