What’s A Trader To Do In November?

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

Hey Traders,

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. 


Once!


At $0.55, the 17-strike puts are relatively cheap and nicely in the money …


I am a buyer.


Your Only Option,


Mark Sebastian

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