Gamma01 Notice the massive open interest at 1280 and 1275 in Jul

Is that a Normal VIX?

Posted on 6/9/2011 in Trading & Technology by Mark Sebastian

Is that a Normal VIX?

The VIX did something totally unexpected yesterday...It Acted like It is SUPPOSED TO!!! The market was down a few points, and the VIX rallied. If anything, IV actually rallied more than I would have expected. The bottom chart is the LiveVolPro equivalent of SPX VIX (the top chart is actual SPX):

Until today, every move down in the SPX has been met with premium selling. Today that began to change, IV caught a bid. Yesterday, the market turned around 10 points and the VIX closed down. The day before we were down 12, and the VIX closed down. Today, we are down 5, and the VIX rallies almost 1%. That is a sign. It seemed that as we began to threaten 1275, IV finally bounced. It could have to do with open interest. Take a look at this OMON (option montage):

Notice the massive open interest at 1280 and 1275 in July, and the even bigger open interest on the July 1250's. As these begin to become in play, look for traders to begin to try and buy these back.

Another indicator that traders are beginning to fear the bottom is the CBOP (the CBOE Option Pit Curve Vol Index) bounced over 1% today. This means that not only was vol up, but bids on the downside of the curve were up even more.

For those worried that they missed their chance to trade this market, I still think butterflies and ratio spreads look like decent spreads. However, I would keep an eye on things tomorrow. If that unemployment number is bad, you probably missed the chance to pop in.

Read more: http://www.theoptionsinsider.com/tradingtechnology/?id=7138#ixzz1P1t5puzY
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