There are going to be about 1000 blog posts about how this is the highest the VIX has been since the flash crash. There will be even more about how this is the biggest crash since 2008. Interesting stuff, but probably a little overdone. Although, I would point out that VIX contango is getting to 2008 levels between cash, front month futures, and back month futures:
I don’t know if it signals a bottom, but it signals the market is really afraid.
As interesting as futures prices and implied volatilities are, I thought I might share an actionable idea today. When reading the WSJ or CNBC.com, I have noticed a consistent language that has been added into their market wraps. It is this phrase: 'widely considered best gauge of market fear.' Of course I am talking about the VIX: the CBOE Volatility Index. While the whole market has been tanking, volatility, the new asset class, has been rallying and rallying. This is bad news for NYSE and ISE but GREAT news for CBOE. The CBOE is making money hand over fist on:
SPX options
OEX options and
VIX options and Futures
All of which are breaking record volumes, this is in ADDITION to its equity profit. With all of this in play, CBOE is cleaning up and could be a nice play here in the next few weeks. With IV this high, a trader can sell the September 21 puts at more 1.00.
Trader could also consider buying call options or doing risk reversals. I would lean toward selling long delta's over buying because of the elevated premium. The risky could make sense but would take ability to put up with a lot of pain in the near term. However, long term the money they are making now is going to turn into $$$ come earnings. I think all bullish plays will, in the end, line up as great plays in this one exchange that is going to be cleaning up while traders get the clocks cleaned.
I’ll be back mid-day tomorrow with a market update on what I am seeing and how to play it. PS I think the only bold prediction from yesterday that might be true is 4-6.
If you have interest in learning how to trade these types of events, check out our Volatility Class, it is going to be the best lesson on Volatility a trader can buy...beyond our L1, L2, or L3 services.
Graphs from LiveVolPro
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