Why Market Fears Aren’t Moving The VIX

The Option Pit VIX Light Is Red, And Volatility Will Drop.


Hey Traders,


A lot of people are wondering why the VIX is so low …


We have inflation fears …


We have the Federal Reserve …


We have COVID …


We have meme stock trading …


Why is the VIX at 16.25???


Let me dig in …


The VIX closed below 17 again, and it’s now heading back below 16 …


But why?


Isn’t there a lot of fear?


Well, for starters, the VIX is still high (see yesterday’s blog).


But one thing people forget is that the VIX is really driven by movement


Realized volatility in the S&P 500 (Ticker: SPX) is the main driver in the VIX …


Welp …


We have no realized volatility!


Movement in the S&P 500 has plummeted.


Take a look at what 20-day (blue line) and 10-day (white line) historical volatility (HV) have done over the last week …


Then look at the red line that is implied volatility (IV) and tell me that is a low number in comparison?


20-day and 10-day HV have tanked.


IV is trading at a huge spread to movement …


You might argue it’s more overpriced now than it was when the VIX was sitting at 20 …


WIth that in mind, I continue to look at the VIX as high, and volatility likely to drop.


I think we could see a real push lower in VIX as July becomes the front month, and all that put open interest I have been talking about starts to get some teeth.


I continue to like owning July puts into the 4th of July weekend.


Your Only Option


Mark Sebastian

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