VIX Mirage

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Hey traders,

We can all become victims of recency bias.

This is the bias that leads us to think the recent past is the way things always will be.

In the case of options recently,  that would mean volatility is going to be high.

The VIX, Wall Streets measure of overall market volatility is about 20, which is low relative to the last few months.

However,  when you look further out on a chart,  VIX of 20 might be seen in a different light:

A 20 VIX is actually pretty high…historically.

As we go further out in time, option premiums are even higher.

This could be what a trader was thinking when he sold a pretty large number of SPX puts that have just over a year to expire.

A trader sold 10,000 of the December 2021 2800 puts!!

FLOW TRICK: These puts traded somewhat close to the bid at the time,  meaning that they were likely sold.

The trader on the biggest lot collects just over 95 dollars a contract.

This means he or she collected $95 bucks a contract betting that the S&P 500 is not going to drop 800 points this year.

While normally that would sound pretty safe,  the price action from this year might make one think a little differently.

However,  when VIX is high,  funds and smart money tend to try to take advantage of the relative high premiums.

Warren Buffett is particularly famous for this approach.

In the throws of 2008 and 2009 Mr Buffet sold a HUGE amount of premium to the market.

While they lost at 1st,  in the end he made a KILLING on the put sales.

This trade appears to be a similar approach.

With the VIX this high,  I personally love moving out my duration (time to expiration) of the sales I make.

With all the VEGA in 1 year options,  a few points above normal volatility levels,  and the trader ends up collecting a TON of premium.

This appears to be what the trader above was doing…

I like it.

Your Only Option,


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