BY MARK SEBASTIAN
August 15, 2023
Hey Trader,
For most of the last 12 months, the VIX has had pretty much one pattern…
…down.
However, intermixed within this general trend there have been pockets of volatility.
Typically we see the VIX break from its downward trend…firm up for a few days … .try to break out higher…and then begin its downward descent again…
This is why I am watching what is happening right now so closely.
After breaking 13 for a few days. The VIX has broken back out above 15 and has stayed between 14.50 and 16.50 for the entire month of August.
This is called coiling…when we see coiling…it is almost certain a breakout is going to happen.
The breakout could be down…or the breakout could be up…
Given how tight September futures are to the cash (a little below the normal width) and how really expensive the way back end of the curve is (Jan and beyond)…
We can conclude that volatility is getting ready to do something…
We are going to see an outsized move on the S&P 500…
As VIX has rallied (the red) you can see that actual movement (the light blue) has not increased.
VIX is telling us this is going to change.
Look for a really strong move in the S&P 500 before Friday.
Best approach is still a strangle as IV is actually still relatively cheap. I would hedge with VIX options.
Questions about anything? Leave a comment below!
Your only option,
Mark Sebastian
Mark Sebastian
Founder & CEO, Option Pit
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