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What if I told you that there is a “season” to volatility…
You see coming out of a weekend, we expect the VIX to be up.
This is called Weekend Effect.
It’s essentially an adjustment for the fact that options decay 24/7 but only trade 5 days a week.
Coming out of Thanksgiving week — when we only trade 3 ½ days — we would expect the VIX to actually be up a little bit MORE than normal.
On a day the S&P 500 is down, we expect the VIX to be up. This is partially because of the way the VIX calculates itself…
But also because down days tend to bring demand for S&P 500 put options. Because, on down days, people tend to want to buy puts.
Yet, here we are after the close on Monday, when the S&P 500 was down over 1% at one point…
And the VIX closed down .27
The VIX is now only .75 points away from breaking 20.(A 20 on the VIX is usually a sign markets are getting to “calm”)
What is going on?
The answer is the market is calming down, because volatility is being sucked out of the market…
The HUGE swings, aren’t so huge anymore…except on rallys.
And, frankly, no one is selling these ‘sell offs.’
Basically, with the VIX over 20, the market thinks premiums on options are high.
The fact is … they are.
The VIX can stay above 20 for a long time … but not forever.
We may be heading for a sub-20 VIX this week … for the first time since Feb. 21.
That’s almost 10 MONTHS:
Don’t be surprised by this price action.
There are A LOT more marginal down days for the S&P 500 that will bring down days for the VIX coming in December.
The VIX light is SCREAMING RED.
Your Only Option,
Oh by the way – My elite trading service “Volatility Edge,” has been killing it on this VIX light red run! You can get in here.
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