What This Big VIX Trade Tells Us

The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.

Hey Traders,


On Thursday the VIX was up and the SPX was up at the same time …


Not usually a good thing.


If this continues, we might switch the Option Pit VIX Traffic Light …


But …


Here is another reason:


On a light day for VIX option trading (only 388k contracts traded), a customer came in and executed this trade:



The customer bought the December 21 straddle paying $5.45.


This is slightly in-the-money, and VIX December futures are about 20, so it leans bearish …


But that is not what is important.


What is important is that this trader only makes money if VIX makes a wild move.


He or she needs the VIX below 16 at expiration, or above 26.


Either way, that would be a big move for the future.


We have seen VIX expirations in the 16’s (like Wednesday) …


Last month, VIX did settle at 15.35 …


But outside of that, there is not a lot that would make a trader hopeful …


Unless VIX is really getting set up to die in December.


Remember the CBOE SKEW Index (Ticker: SKEW) is back to normal, and volatility in the overall S&P 500 is low:



10-day, 20-day, and 30-day day historical volatility (HV) are all below 9.


VIX might be set for a drop …


On the other hand, we could see a pop …


That would be more in line with what many retail traders are looking for.


The basics of this trade is that it is probably a hedge, where the trader is looking to break even or better if the VIX falls …


And clean up if the VIX pops…


Your Only Option,

Mark Sebastian

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