With A 30 VIX, Dec. Expiration Will Be A Humdinger

Yo Pit Crazies,


The VIX is at 30 and something is off with this picture from Friday …



The Dow Jones Industrial Average (DJIA) moved .17% intraday and the S&P 500 (SPX) moved .65%. 


Yet VIX had its second highest close of the year.


Something is up so let’s go see what is.


The Fed Moved the Goalposts Again


That’s it.


That’s the Tweet.


“The Fed moved the goalposts again.”


We’ve seen a stronger response to inflation after Federal Reserve Chairman Jerome Powell secured his second term, raising rates early with a stronger, faster taper.


That is not good for tech stocks. At least that is the common wisdom. (Of course that did not matter in 1997 when rates were 5%.)


I wrote about that this week for Cathy Wood and her Ark Funds notably the Ark Innovation ETF (Ticker: ARKK) flagship. 


Take a look at those charts and those stocks are down considerably — more than 50% from highs.


Note below Vol Man jumping from 1 IV high to another … 



Implied vol is much higher on this spike than the taper in late January of this year.  The difference is, I am not seeing the SPX make the January moves, as it is only down 4% from highs. Stocks are moving intraday almost twice the close-to-close volatility. That is building a lot of buy pressure into expiration.


Higher implied volatility on less movement means traders are still buying protection.


Part of the reason, especially in VIX, is VIX expiration is a full week after the Fed delivers its policy response on Dec. 15-16. Normally FedSpeak is on VIX expiration day, but not this time.


VIX expiration is Dec. 22 this cycle, so the VIX cycle range after the Fed speaks could be 30+ or 16.


I think the best trade for that is in-the-money call butterflies in VIX into the announcement with a  cheap put hedge.


I will cover that in Monday’s VIX Made Easy session.


There’s still time to catch up on this weekly live course — and certainly no better time than with a 30 VIX.


The Rundown


Capitol Gains w/ Frank Gregory
Option Pit DC and Wall Street insider Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K Street knowledge and my options expertise.

      • Coinbase (Ticker: COIN) call butterflies will most likely be on tap this week, with PetroBras SA (Ticker: PBR). COIN is down $75 or around 25% in 2 weeks.

      • I expect to close my Canejo Corp (Ticker: CCJ) this week.


Power Income Trader:

Power Income Trader is a systematic approach to trading inflation.  By pulling real-time data from the Fed, US Treasury and Gov’t, Power Income Trader alerts users on changes in money flow driven by Fed policy. Bill’s system puts you out in front of the most powerful money flow in the world.


      • Bill is buying put spreads in PIMCO 25+ Year Zero Coupon US Treasury Index ETF (ZROZ)


Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 


The Pro Room used Friday to to sell puts (of all things):


      • I sold some Smith & Wesson Brands Inc. (Ticker: SWBI) Jan. 2022 15-strike puts a bit early. There were earning concerns and liability issues punishing the stock.

      • I bought some VIX call flies as described up top today on Friday …


Big Money Flow

Each week, Option Pit CEO Mark Sebastian looks at size institutional option buying with a twist.  He mostly buys calls or puts to ride the large momentum trades.


      • American Airlines Group Inc. (Ticker: AAL) saw some huge put selling over the past few days, fading the Omicron hype.  If Omicron is a nothingburger, AAL should rocket.


Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active MEME  names.

      • DraftKings Inc. (Ticker: DKNG) getting the call for calls and a bounce.

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle/calendar trading vehicle. The goal is to teach students the best times to buy options.


      • I rolled some short Palantir Technologies Inc. (Ticker: PLTR) looking for a bounce.  PLTR is getting hit with the Cathy Woods stick right now.


Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside Cboe Volatility Index VIX, iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) and ProShares Ultra S&P Short Term VIX Futures ETN (UVXY) options.

The Option Pit VIX Light Is Green as VIX moves into severe backwardation.  Expect  big moves intraday in SPX.


A little love from one of my VTC members and long time Pit Crazy:


I closed Trade 271 QQQ put flies for a 60% return.  I can sit on the position here with this QQQ settlement and get well over 100% return for the remainder of my QQQ/VIX put trade.


Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!


To Your Trading Success,



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