VIX Futures Are Heading for a Fall

For the first time in a long time, the VIX is starting to feel heavy…

Like it WANTS to go down.

On Thursday, the market had a nice mid-day dip … yet the VIX didn’t go crazy.  

When the S&P 500 went from up 10 (3860) to flat in the final minutes of the day, VIX did not rally hard — it ended down .26 instead of up.

Wednesday, with the S&P 500 up 50 points, VIX … just kinda fizzled all day, closing down almost 2 points.

This is actually something I would have expected a year ago.

Recently, though, the VIX would have barely closed down as option buyers raced to buy calls and/or set up a hedge.

The two day chart looks kinda sad:

The reason the VIX is falling is because some of the fears of presidential transition are over.  

In addition, today was an “inside day” — when the S&P 500 moves less than option market makers have priced into options — meaning my post from yesterday calling for a greater than 34-point movement over two days is wrong for now. 

And a falling VIX on a flat day indicates more inside days.  

One thing about this post-election rally was that if we weren’t going up, the VIX was going to go up.

Until now.

Look at this chart from the last three months. The top is the S&P 500, the bottom is the VIX.

I’ve circled the spots where the market really did not have a sell off, per se, but a breather … 

You’ll notice, every time that happened, VIX went up.

I mean, we even had a day when the market was up 20 and the VIX went up.

And that big VIX candle (in the third circle), which would usually indicate trouble ahead and HUGE volatility, came from a day where the S&P 500 was down less than 2%.

This shows you that, yes, the VIX drops on rallies, but it is more in relation to the rally, not volatility letting up. (There is a function of the VIX calculation that almost automatically makes it fall on a rally unless vol is REALLY bid).

Thursday, despite the S&P 500 not rallying, VIX did not go up …

That is a bearish sign for the index.

I think we are going to have a sub 21 VIX on Friday … and potentially a sub 20 VIX on Friday — which, if we closed there, would be a post-Covid first.

This type of action will invariably pull down the VIX futures.

That will cause VXX and UVXY to drop to new lows … VXX is going to trade below 16 tomorrow and UVXY will drop below 10.

Next week’s VXX 16 puts (the Jan29 expiry) cost .50. I’m a buyer there, as they will do well with a push lower tomorrow.

The VIX light is red … the VIX is going down.

Your Only Option,


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