The Option Pit VIX Light Is Red, and Volatility Is Likely to Fall.
On Monday, the VIX had its lowest settle since the pandemic began.
The “fear index” actually crossed 19 and appears primed to potentially keep dropping.
It was, in short, an all out volatility crush.
Not only was implied volatility down across the S&P 500 down, but many of the beloved “meme” stocks took it MUCH worse.
For instance, take a look at the across-the-board drop in implied volatility in AMC Entertainment (Ticker: AMC) — on a day it was DOWN $2:
April vol in AMC was down over 15 points (the red number).
This is a sign, people.
Meme stocks were one of the true bastions of high volatility.
If those stocks start to see their IV’s drop …
Well, there’s no telling where VIX could go next.
You might be saying to yourself, “Aw, it’s too late now. I missed out!”
But I have good news for you ..
The VIX is eventually going to drop to 12 when all is said and done.
That means there are seven more points for the VIX to fall between now and the summer, when I think we could bottom out.
And VIX futures are still in the 20s across the board. Take a look:
While the VIX complex is now in a full on contango (futures price is higher than the spot price), with the April future trading over 21 — it has a full three points to drop just to catch up (the future has to eventually settle to the price of the VIX).
If VIX keeps falling and MEME vol continues to drop, the April future could end up settling below 19 …
A Couple of Ways to Play
That means that out-of-the-money (OTM) put spreads are extremely favorable.
The 20 puts cost about 1.25. I can buy those and sell the April 17 puts at .20, setting me up long the April 20-17 put spread for 1.05.
My put spread would WIN if the VIX closed today, something only VIX options do (thanks to mean reversion): 20-1.05 = 18.95; VIX closed 18.88. If the VIX does nothing, the put spread will expand to 1.12 because VIX futures settle to the VIX at the end of their life.
If that VIX future starts to drop, this spread could quickly balloon to $2.
Another play I like is VXX April puts …
In my Volatility Edge program, we put out a calculated, inexpensive play on the VXX April 10 puts.
They will win if the April VIX future gets to 18 … something that is definitely in the cards.
I expect to be doing A LOT of trading in Volatility Edge over the next few weeks — and would love to have you along for the ride.
Option Pit Round Robin
Finally, longtime readers know that I’m a trader who loves to teach …
What some may not be aware of is that I have an entire team of professional traders and insiders who help take Option Pit students to the next level every day.
That’s why I’m excited to announce that THIS THURSDAY, we’re hosting the first-ever Option Pit Round Robin, an all-day event featuring sessions with the Option Pit pros (and a special guest!).
This is unprecedented access to elite mentoring.
Whether you want to learn more about making money on volatility, using candlesticks to rake in gains, lucrative plays based on trading charts or leveraging MASSIVE Fed spending for profit — you will walk away from Thursday’s event as a better, more confident trader.
Your Only Option