The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.
The VIX October expiration happened on Wednesday, settling at a post pandemic low of 15.35.
Now that November is the front month …
With the VIX in the 15’s …
What is a trader to do?
Here is the plan …
With October settling at a post pandemic low of 15.35, we move on to November.
October was unique in that it was the first time in a long time that cheap, out-of-the-money puts, or even near-the-money puts, settled IN the money …
Can the same thing happen in November?
There is some work to do.
The November future is currently VERY expensive:
The spread between the cash and the future sits at about 4 points.
That is REALLY wide.
With the SKEW index normal, we could see VIX stay here for a while.
Even with a small sell-off, it could be hard for VIX to truly pop.
So what is a trader to do?
I can tell you what many traders were doing…
Buying the November 15-strike puts for $0.10.
Check out the volume on the 15 and 16-strike puts in November:
On a busy VIX day, the most active strikes were cheap puts … interesting.
That said, I see more value in the 17s.
The 17 puts went for $0.55.
This means that the premium is more than $1.00 in-the-money relative to the cash.
The 15s are actually out-of-the-money, and we have settled below 16 ONCE.
At $0.55, the 17-strike puts are relatively cheap and nicely in the money …
I am a buyer.
Your Only Option,