BY MARK SEBASTIAN
October 17, 2023
Hey Traders,
The VIX recovered a decent amount of Friday’s blow off the top rally closing down to 17.21 – a really nice drop.
The SPX rallied even more than the VIX fell, running up over 1%, good for a 45.85 point rally to 4373.63.
So the play on Friday must have been to buy puts on VIX, UVXY, VXX, or UVIX right?
Not exactly.
You see when the VIX explodes … so does VVIX.
Remember, VVIX is the cost of options on the VIX, so when it goes up VIX options get more expensive.
It closed up 23 points on Friday – a huge move:

And while the VIX itself did not give back all of Friday’s gains, the VVIX did give up most of those gains, closing up only about 2 points from Thursday’s close.
This means that as VIX was falling, VVIX was falling harder.
This is going to CRUSH options prices in VIX, UVIX, UVXY, and VXX.
Which is what we said would happen if the VIX turned around.
So pay attention every day – our job is to find you winning trades.
Check out the price action of the UVIX November 30 since they listed Thursday:

On Friday, the UVIX November 30 put closed at 4.00. On Monday, despite UVIX dropping 7.63, the November 30 put only picked up .35.
THAT’S IT!
And that is the power of Vega on an option in the vol products.
The Best Trade You Should Have Made: Understanding vega, the best simple play on the VIX spike (and we laid this out in Trading Desk) we would actually go long an index like the S&P 500 and play the VIX to keep going up. That’s a pair trade.
This was a reasonably safe trade – but profitable. We’re always hunting for opportunities, and in this case we placed this trade in Trading Desk and Trade to Close and we went over this in our webinar last week. If you want to make these trades with us – real quick – give us a call… 888-872-3301. Else don’t ever miss a live event. Tomorrow or later this week, I may even have another long term trade this week, as the VIX has pulled off… we’re looking to get your some red meat that goes out a little ways.
Trade —>>>>>> We bought an XSP 434-439 bull call spread and bought a VIX 20 call 1 to 1, the total cost of the package was about 2.50. Even with the VIX call going from a dollar to .25 the entire package returned 40%.
What I discussed above is actually the same kind of discussions we would have when I was going through my training program at Group 1.
One time a trader named Matt came upstairs and asked us a very similar question.
A stock he was trading had dropped about 5%. He told us that he was long downside puts.
He then asked us if he made money…we all assumed he did.
Then he walked through with us, exactly what I just walked through with you.
As traders we know it is our job to pass down these types of lessons to newer traders…
Now that I’m not a market maker (any more) but working with Retail Traders, that job is even more important.
This is why I write Trader’s Edge.
It’s why Andrew and I are hosting a class on Saturday, October 21 starting at 9:30 a.m. ET.
The trades we make at Option Pit – including the one we talked about today – are powered by a secret engine that allows us to find the best option trade in about 30 seconds.
It’s the secret to our success … and it’s a secret I want to share with you.
Like I said before – my job is passing down lessons to retail traders.
So click here and sign up now … seats are limited and filling up fast!
Questions about that? Leave a comment below!
Your Only Option,
Mark Sebastian
Mark Sebastian
Founder & CEO, Option Pit
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