The Option Pit VIX Traffic Light Is Green: Volatility Can Go Up.
Hey Traders,
On Wednesday the market looked like it was ready to take off …
Then the Federal Open Market Committee (Ticker: FOMC) came out, and the S&P 500 (Ticker: SPX) dropped like a stone.
On the day, the SPX had a range of over 120 points.
This is NOT low volatility!
On Wednesday, the S&P 500 could not end the day positive.
Despite being up most of the day, the post-FOMC Jerome Powell news conference was enough to send the S&P 500 tumbling.
In the end, VIX futures ended up at a new high close for the cycle.
And the VIX futures curve?
VERY backward:
On a day like this, I would have expected a rush of call buying into the close.
That did not happen.
In fact, check out the top 12 trades on the day:
THEY ARE ALL PUTS!
Puts outpaced calls nearly two-to-one, on really strong volume:
Traders were buying complex spreads, put spreads, and outright puts on Wednesday.
So what gives?
Remember, these traders are playing mean-reversion…
Now that the FOMC is out, it is going to take a couple of days to digest, and we could see some fireworks …
But also remember VIX has been taking the elevator up and down as of late, and these traders appear to be banking on a trip below 20 by February 16!
We shall see …
Your Only Option,
Mark Sebastian