The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.
Hey Traders,
The market took a turn yesterday, and volatility caught a huge bid …
But something else has been happening under the radar.
If you miss it, you’ll regret it.
Here is what I am seeing …
The VIX caught a nice bid on that S&P 500 (Ticker: SPX) turn around.
But does this mean the VIX is heading back to 20, or is this a chance to fade?
Take a look at open interest on the VIX November 15-strike puts:
Over the last few weeks, trading has ballooned on the November 15-strike puts.
Open interest now stands at over 300,000 contracts.
Why?
There is a lot of speculation VIX could tumble …
Remember, the CBOE SKEW Index (Ticker: SKEW) is still pretty flat, and the market is near an all-time high.
Most of the biggest earnings are coming to an end by Thursday night.
There are real reasons volatility could collapse.
But what about inflation, rates, supply chains?
I fear we could see a real pop if energy prices spike again, but outside of that, most of the above I listed are known quantities …
And therefore not drivers for VIX.
Your Only Option,
Mark Sebastian
