When vol spikes — like it did on Monday to the tune of 33%! — you don’t want to be alone worrying about what to do. That’s why I hopped on Zoom for an exclusive ALL-HANDS session with our Volatility Edge members. We covered how to protect your account, and how I planned to trade (and win!). If you want insights when you really need them, join us in Vol Edge now.
On Monday, the market took a nosedive.
Unfortunately… you may have taken a hit.
What you likely didn’t realize while you were losing your shirt and stashing your remaining cash under your mattress… is that while the S&P 500 plummeted, the VIX index absolutely skyrocketed.
Here’s a view of the pop:
After a month in the low 20s, the VIX actually knocked on the doorstep of 30 yesterday!
But then, the plot thickened.
While the S&P 500 mostly recovered, the VIX did NOT give up the ghost.
See how that line has held higher?
The SPX closed down less than 15 points, not even .5%
However, the VIX still closed up over 3.5 points at just under 25.
This type of disconnect is unusual and extremely rare … and presents a unique opportunity for volatility traders.
Look, I have always argued the VIX traders are smarter than equity traders.
And if VIX traders are right, we could be in for more fireworks this week.
Here’s why this could absolutely happen …
- During Christmas week A LOT of traders are out and liquidity tends to be terrible.
- So it only takes a handful of traders with an axe to grind to push the market lower.
The point is that if you look at the SPX, today looks pretty meh …
But the VIX does not agree.
I’m thinking the VIX is overdone and probably will come down over the next few days — unless there is another shoe to drop on COVID.
So it looks like VIX, VXX and UVXY are giving traders a really good opportunity to fade volatility here — and I’m guiding my trades as such.
On Monday, I hosted an exclusive All Hands on Deck session for my subscribers to make sure no one panicked. (We’re a family here at Option Pit, after all.) In that session, I put together a trade I really like in VXX that allowed me to fade …
… but I also hedged it …
Because, like I said, I think VIX traders are smarter than equity guys.
The VIX light is RED (although it is showing some flashes of yellow), meaning the VIX has a likelihood of a swing up or (probably) down.
I’ll be looking for that drop as we head into the holidays.
Your Only Option,
PS – PS – With vol spiking, I went live Monday for members of our Volatility Edge service. Get immediate access to the replay — which includes a must-have look-ahead to 2021 — when you sign-up today. Join Vol Edge now.
DISCLAIMER: FOR EDUCATIONAL AND INFORMATION PURPOSES ONLY; NOT INVESTMENT ADVICE. The materials presented from Option Pit LLC are for your informational and educational purposes only. Neither Option Pit LLC nor its employees offer investment, legal or tax advice of any kind, and the analysis displayed with various tools does not constitute investment, legal or tax advice and should not be interpreted as such. Using the data and analysis contained in the materials for reasons other than the informational and educational purposes intended is at the user’s own risk.
DISCLAIMER: OPTION PIT LLC IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER. Option Pit LLC is not responsible for any losses that may occur from transactions effected based upon information or analysis contained in the presented materials. Specific trading ideas or strategies discussed in the presentations or materials are entirely illustrative and do not constitute the solicitation of a transaction (or transactions) or a recommendation to execute a particular transaction or implement a particular trading strategy.
DISCLAIMER: TRADE AT YOUR OWN RISK; TRADING INVOLVES RISK OF LOSS; SEEK PROFESSIONAL ADVICE. To the extent that you make use of the concepts with the presentation material, you are solely responsible for the applicable trading or investment decision. Trading activity, including options transactions, can involve the risk of loss, so use caution when entering any option transaction. You trade at your own risk, and it is recommended you consult with a financial advisor for investment, legal or tax advice relating to options transactions.