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