VIX Should Have Dropped. It Didn’t.

Yo Pit Crazies,


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Elsewhere, the VIX should have cracked big yesterday.


It did not.


Vol went up a touch and I think there are reasons.


I am not sure VIX can really jump, but let’s take a look …


SPX IV Is About As Cheap As It Can Get In the Short Term 


Take a look at the snap below. It’s a candlestick price chart of the SPX Dec. 3 4,700 call …


SPX IV for the Dec03 4700 strike


 On a day like yesterday, the IV moved 9.59 TO 10.5.


You may say that isn’t a big deal, but that term does hide a few things.


      • It is after Thanksgiving, so the liquidity provider is putting time back into the option after discounting for the holiday.
      • Dec. 03 is just inside the VIX calc, which is a moving target of 23 to 37 days from today, so this option is more gamma sensitive
      • VIX futures did not decay at all yesterday since VXX was unch on the day.


Two-week options at a 9.59% implied volatility is not a big deal, but if it moved even lower that would be notable since it would signal more confidence in the rally and some option sellers.


Yesterday the option buyers came back.


I will stick with my concept from last week of long VIX and long SPY. I closed some SPY call calendars since I hit 470, but I will most likely reload at a higher, cheaper strike with a bit more time to expiration. (See my update for the Volatility Trading Club below.)


I think VIX is still firm because the binary switch is in place, the steady rally in SPX or the hair pulling drop. So far, only the former has played.  


Frank and I will hit on some of the crosscurrents that are holding up VIX later today at 2 p.m. >> Register here. <<


If they end up with little damage I expect VIX to drop and SPY to continue the rally.


The Rundown


Capitol Gains w/ Frank Gregory
Option Pit DC and Wall Street insider Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K Street knowledge and my options expertise.

I added a Mandiant Inc. (Ticker: MNDT) long call and short put for .05 today and I own the Jan. 21 15-strike puts as hedge.


Stocks currently in the CAPITOL GAINS portfolio:


      • Regeneron Inc. (Ticker: REGN) long COVID therapies
      • Mandiant Inc. (Ticker: MNDT) long Cybersecurity
      • PetroBras SA (Ticker: PBR) long oil
      • SPDR Oil and Gas Explorers (Ticker: XOP) long oil
      • Intel Corp (Ticker: INTC) long chip shortage
      • Powershares QQQ Trust (Ticker: QQQ) portfolio hedge
      • Canejo Corp (CCJ) long Uranium Play


Power Income Trader:

Power Income Trader is a systematic approach to trading inflation.  By pulling real-time data from the Fed, US Treasury and Gov’t, Power Income Trader alerts users on changes in money flow driven by Fed policy. Bill’s system puts you out in front of the most powerful money flow in the world.



Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 


The Pro Room was a bit cautious from VIX yesterday, most longs were selling OTM put spreads in blue chips like Walmart Inc. (Ticker: WMT).


Here’s a followup to yesterday’s Pro Chat exchange on Qualcomm Inc. (Ticker: QCOM):



Big Money Flow

Each week, Option Pit CEO Mark Sebastian looks at size institutional option buying with a twist.  He mostly buys calls or puts to ride the large momentum trades.


      • I added calls in iShares MSCI Brazil Index ETF (EWZ) on a massive risk reversal going up in Feb (long call, short put).


Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active MEME  names.

      • Mark added some ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) yesterday.


Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle/calendar trading vehicle. The goal is to teach students the best times to buy options.


      • I sold more  PLTR puts today in the Nov. 26 22.5s to keep the short put spread roll going.


Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.

The Option Pit VIX Stop Light Is Red and I expect several closes this week.  


In trade Volatility Trading Club No. 269, I closed the SPY Nov19/Dec 01 call calendar for a 50% gain but I am down on the VXX calls with two weeks to run.


I will add either a long SPY or  VXX put because, as I mentioned above, some air could come out of the vol balloon by Friday.


Remember to register for our 2 p.m. event today as we help you profit from Big Government, EV mania, a revolving Fed and more!


To Your Trading Success,


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