The Option Pit VIX Light Is Red, Volatility Will Drop.
On Thursday, the S&P 500 (Ticker: SPX) was up about 12 points, and the Nasdaq 100 (Ticker: NDX) actually closed down.
The VIX managed to eke out a small gain, moving up 0.30 to close at 16.44.
VIX futures on the other hand … they closed down, thus ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) closing down on the day.
So who is right?
Is the VIX going to pop on non-farm payrolls?
Or is the trend going to follow VIX futures, and drop?
The order flow in options is saying one thing …
The VIX closed up .30 to 16.44.
The S&P was ALSO up …
But the big “uh oh?"
Well, VIX futures … they were DOWN, not up.
This can be explained partially by convergence of VIX spot and VIX futures.
But then I also took a look at September option flow …
Traders bought 55,000 of the 17-strike puts expiring on the 15th.
They also bought another 45,000 puts between the 18, 16, and 15 strikes!
In addition, check out the open interest on those strikes: it is BIG.
Those four strikes make up four of the five biggest open interest strikes in September …
Oh, by the way … the October 17-strike puts have open interest of 226,000, and the October 14-strikes have 213,000 open interest.
The point is that once again, the entire VIX market is positioned for a VIX sell-off.
Could we see that on non-farm payrolls … into a long weekend?
Here is what I will say: the September 15-strike puts only cost $0.05 … (yes, I know I keep saying this).
Your Only Option,