Tomorrow, June options on the VIX will settle.
That’s right – unlike traditional options, VIX options settle mid-week instead of Friday. They can also only be exercised upon expiration and are settled in cash, since you can’t own direct shares of the VIX.
But option characteristics aside – we could be looking at the lowest VIX settlement since the pandemic began.
One that could drop the index to 15, a level it hasn’t hit since early 2020.
And we aren’t the only ones who think so.
Institutional traders are betting big on a VIX drop – the kind of trades that could unlock two-factor authentication, getting attention from retail traders like us and the big money.
Check it out – yesterday, I saw crazy activity on VIX June puts with strikes from $18 all the way down to $15:
These puts expire tomorrow. But the big money is already looking ahead of tomorrow’s settlement, dropping cash into July puts as well:
Open interest is exploding. The VIX is at pandemic lows, while the S&P sits at all-time highs.
This all points to a few things…
First, the market is healthy. Fear is low, and stocks are high.
Second, we could be looking at a potential gamma squeeze on the VIX.
Remember the gamma squeeze that pushed AMC Entertainment Holdings Inc. (NYSE:AMC) 380%-plus higher in a month?
Well, we could be looking at the same thing on the VIX by tomorrow’s expiration. Except this gamma squeeze isn’t going to push the VIX higher…
It’s going to send it sinking down to sub-15 levels.
So, how do we play it? Well, we’re talking about an extremely short-term trade here. The June $15 puts, expiring tomorrow, only cost a nickel.
Buy 100 contracts, and you could be looking at a $9,500 profit on a $500 trade – that’s a 1,800% gain. Talk about asymmetrical!
As you know, the VIX is the single most important tool I use when playing the market. And I’ve compiled everything you need to know – what the VIX is, how it works, and the details of my VIX traffic light system – in a single report.
The star of today’s Watchlist? Brazil. The country is seeing big money flow into multiple sectors – and today, we’re highlighting oil and the financials as oil prices jump to $75 a barrel and beyond.
- Petróleo Brasileiro S.A. (NYSE:PBR)
Big money has been flowing into this Brazilian petroleum company – and one trader’s 10,000-plus contract bet was just proven right.
When a big-money trader is right on a trade, and then rolls that position into the future, that’s a huge sign to piggyback. And this trader is rolling their calls into July.
I’ve got my eye on the July $12 calls for $0.43. And big money isn’t the only reason I’m eager to jump on this trade…
Oil is rising. And the last time it was $75 a barrel, PBR was $15-$16. Today, it’s around $11.50. So, as oil rises, this stock will have no choice but to do the same.
- Itaú Unibanco Holding S.A. (NYSE:ITUB)
We’re looking at another close and roll on this Brazilian bank. One big-money customer sold out of their June options and rolled them back to July and August.
They were right on their ITUB calls – and I’m willing to bet they’ll be right again.
See, the Brazilian economy is driven by commodities like oil. So, when oil prices increase, more money enters the economy – helping out financials like ITUB.
- Bank of America Corp. (NYSE:BAC)
Brazilian banks aren’t the only financials on the up and up. And BAC is no stranger to the Profit Takeover Watchlist. Down 3.48% the past five days, there’s a great buying opportunity in BAC with the September $42 calls.
VIX Traffic Light
My forecast on the VIX hasn’t changed the past couple of weeks, and we’re looking at a red light again today as volatility continues to wind down.
But just because the VIX is dropping to lower numbers doesn’t mean there isn’t money to be made in this market.
Just look at what we did with our UVXY puts last week – we locked down a 100%-plus profit on sinking volatility.
And get this – the ETF is still heading down. Since its reverse split, UVXY has shed 25%. If the VIX drops as low as 13, we could potentially see this ETF lose another third of its value.
That’s why I’m still using bearish strategies on the UVXY. The June 25 $30 puts, in fact, are just $2.20 – and they could double by next Friday.
Now, none of the trade ideas I gave you today will be added to the official Profit Takeover portfolio.
We’re saving that for tomorrow. So stay tuned.
In the meantime, be sure to check out our newest Profit Takeover report…
In this report, you’ll find everything you need to know when it comes to market volatility. This is your VIX bible – be sure to bookmark this page!
Until next time,
June 15 2021