What a difference a day makes

Yo Pit Crazies,

VIX is making a run back to sub-17.

What does it mean? Why?

And what was the big difference from yesterday to today?

The expected volatility in SPX did not materialize, and I suspect it had something to do with the Derek Chauvin trial and verdict — geopolitical events often bleed into the VIX.

Read on to see how it happens. ….

Geopolitical issues will find their way into VIX usually with expansion of option premiums.  I look at cause and effect in trading. And the reality was volatility in the VIX was up yesterday and now it is not. 


        • Chauvin Trial Verdict
        • Netflix (Ticker: NFLX) earnings.

When I trade VIX, I look at the things that would make me bid up option values …

The thing I learned as a floor trader was to make people pay for my uncertainty. 

Events have huge uncertainty — but captive end dates. Options get real expensive into that date.

NFLX is down 10% after a huge move higher this last year.  No way to take that as a positive for tech earnings to come. I mark that as a market negative.

The Chauvin verdict was guilty and the jury deliberated fast.  Right now there is relief — so a  rally and drop in VIX after the event. No doubt in my mind the verdict was part of market action.

I expect VIX to get back to the lows of last Friday as long as things stay calm

Trading volatility comes in waves. Into the jury deliberation the wave was up. Similar to some of the unrest this summer, the market gets used to it and volatility slowly subsides.

Think of this geopolitical event as an earnings play and VIX is the underlying stock. VIX tends to drop after the event is over.

 If I view this by market action- the trial verdict had a bigger impact than NFLX earnings.  

The Lesson: Geopolitical events will find their way into the VIX via higher options premiums in SPX since the expected move is bigger.  Look for the air to come out after the event.  Trade for what you see. Nine times out of 10, VIX drops after a big geopolitical event.

The Rundown

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Sharp Bets: Mark Sebastian runs our marquee long option strategy. SB specializes in low-implied volatility calls and puts and managing trade size for a risk-adjusted portfolio of options. 

He is currently riding four positions: up in Coca Cola (Ticker: KO) ViacomCBS (Ticker: VIAC), Nordstrom (Ticker: JWN) and down a bit in Nike (NKE).

Volatility Edge/Volatility Trading Club: Vol Edge is showing that the proprietary Option Pit VIX Light Is Red, which means Cboe Volatility Index (VIX) futures are in contango (futures price is higher than the spot price).

VIX is in Zone 2 — the 13-17 range – and  we got close to a yellow light but VIX stopped going up, as explained up top.

This is the best time in my view to own May VIX puts with an upside hedge.  No change here as that is my outlook for the last few weeks.  No new closes this week, just parts of winners but things look good.

Remember, a lot of vol strategies I use are market neutral. That means if SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

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

I was able to close the puts in Desktop Metal (Ticker: DM) for an 80% gain, Now we can ride the calls. I made enough on the puts to own the calls for near-nothing with 30 days to run.

We own Vaneck Vectors Gold Miners ETF (Ticker: GDX) call butterflies and puts looking for a 10% up move in GDX. The trade is up around 75% with some call butterflies closed. I still like the long gold trade.

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

The Pro Room produces about 30 actionable ideas per week. These were a couple of my favorites from the Roomies …

        • I bought a PetroBras (Ticker: PBR) Jun18 9 call and 8 put for .82 — running just down .10 per spread right now
        • Buy to open Playboy (Ticker: PLBY) strangle May 40/55 call spread vs. 30 put @ $5.30. The Pro roomies were starting to take profits on the call spreads.

To Your Trading Success,



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