We Could Be Headed For A VIX Collapse

The Option Pit VIX Light Is Red, And Volatility Is Likely To Drop.

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Back to the VIX …

Coming out of a weekend, we often expect the VIX to be up.

And on Monday, it was … for most of the day …

But then as the market rallied higher to end the day nearly unchanged, the VIX also managed to get to even on the day.

There is a lot to unpack about the VIX trading Monday.

And while volume was slow, there were a few clear signs of what the VIX is doing next.

Here is what I saw.

Coming out of a long weekend last week, for the VIX to close unchanged, effectively means it went down.

I explained why in this post that I highlighted last week.

But that is not the only interesting tidbit.

The VIX has now closed below 17 for two days in a row.

It did this once in April …

And that is the ONLY other time since the start of the pandemic:

Additionally, the VIX closed flat (essentially down) on a day where the S&P 500 (Ticker: SPX) was actually down on the day.

Yes, it was only down three points, but lately any down move in the S&P 500 has meant a VIX rally …

Not this time.

SPX movement has collapsed in the last 10 days:

It is now approaching lows for the year, and who knows? It could go lower.

So what does all this mean?

Add in all those July puts I discussed in Monday’s post, and I think we have a recipe for a full-scale VIX collapse.

I’m calling it now … I think we will see the VIX trade near 15 this week.

June expiration next Wednesday is set to be the lowest since the pandemic, unless a shoe NO ONE currently sees coming drops …

I would be playing VIX June 15, 16, and 17-strike puts leading into Friday.

Your Only Option

Mark Sebastian

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