When vol spikes — like it did on Monday to the tune of 33%! — you don’t want to be alone worrying about what to do. That’s why I hopped on Zoom for an exclusive ALL-HANDS session with our Volatility Edge members. We covered how to protect your account, and how I planned to trade (and win!). If you want insights when you really need them, join us in Vol Edge now.
Hey Traders,
On Monday, the market took a nosedive.
Unfortunately… you may have taken a hit.
What you likely didn’t realize while you were losing your shirt and stashing your remaining cash under your mattress… is that while the S&P 500 plummeted, the VIX index absolutely skyrocketed.
Here’s a view of the pop:
After a month in the low 20s, the VIX actually knocked on the doorstep of 30 yesterday!
But then, the plot thickened.
While the S&P 500 mostly recovered, the VIX did NOT give up the ghost.
See how that line has held higher?
The SPX closed down less than 15 points, not even .5%
However, the VIX still closed up over 3.5 points at just under 25.
This type of disconnect is unusual and extremely rare … and presents a unique opportunity for volatility traders.
Look, I have always argued the VIX traders are smarter than equity traders.
And if VIX traders are right, we could be in for more fireworks this week.
Here’s why this could absolutely happen …
- During Christmas week A LOT of traders are out and liquidity tends to be terrible.
- So it only takes a handful of traders with an axe to grind to push the market lower.
The point is that if you look at the SPX, today looks pretty meh …
But the VIX does not agree.
I’m thinking the VIX is overdone and probably will come down over the next few days — unless there is another shoe to drop on COVID.
So it looks like VIX, VXX and UVXY are giving traders a really good opportunity to fade volatility here — and I’m guiding my trades as such.
On Monday, I hosted an exclusive All Hands on Deck session for my subscribers to make sure no one panicked. (We’re a family here at Option Pit, after all.) In that session, I put together a trade I really like in VXX that allowed me to fade …
… but I also hedged it …
Because, like I said, I think VIX traders are smarter than equity guys.
The VIX light is RED (although it is showing some flashes of yellow), meaning the VIX has a likelihood of a swing up or (probably) down.
I’ll be looking for that drop as we head into the holidays.
Your Only Option,
Mark Sebastian
PS – PS – With vol spiking, I went live Monday for members of our Volatility Edge service. Get immediate access to the replay — which includes a must-have look-ahead to 2021 — when you sign-up today. Join Vol Edge now.
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