\tYou see, VIX options are not like most stock option contracts, which can be exercised at any time.<\/p>\n
\tVIX options are European-style contracts – meaning they can only be exercised on option expiration day. This eliminates any possible “arbitrage” effect (the act of buying an option, exercising it immediately, and then selling the underlying security for a profit). So VIX options will often trade at a discount to intrinsic value.<\/p>\n
\tFor example, on Friday, the VIX closed at 9.14. At that level, the VIX November 8 $9.50 puts are intrinsically worth $0.36. But they were offered at only $0.10. That's a $0.26 discount to their intrinsic value.<\/p>\n
\tIf it existed on a regular, American-style stock option, you could buy the put, exercise it, and liquidate the position all day long – picking up $26 for every contract you traded. The European-style feature prevents that from happening – because you can only exercise the contract on the November 8 option expiration day.<\/p>\n
\tBecause of this unique pricing structure, VIX options provide terrific clues about where most traders expect the VIX to be on option expiration day.<\/p>\n
\tThe current VIX option prices tell us that even traders who are making bearish bets on the VIX expect the index to move higher over the next two days.<\/p>\n
\tThis sentiment is even more evident if you go out a little further and compare the VIX November 15 $9.50 calls to the VIX November 15 $9.50 puts. The calls closed Friday offered at $1.55, while the puts were only $0.05. (I use my trading quote system to track these prices, but you can find them at FreeRealTime.com<\/a>.)<\/p>\n \tVIX calls are trading for 31 times the price of the equivalent VIX put options. So, VIX option traders clearly expect the index to move higher at some point over the next two weeks. And a rising VIX (rising volatility) usually accompanies a falling stock market.<\/p>\n \tSo if you're making short-term bullish bets, be careful. The VIX “crystal ball” has been right four straight times this year. I’m betting it will prove correct this time as well.<\/p>\n \tBest regards and good trading,<\/p>\n \tJeff Clark<\/p>\n \tIn today’s mailbag, we hear about readers’ strategies and successes in the gold and retail markets…<\/em><\/p>\n \t\tI make money in gold most months by selling puts on gold miners. I have two open positions now… I hope that I get put one or both. Then I would go the covered call route.<\/p>\n \t\tI am in several of your picks now. I look forward to your comments each day. New subscriber!<\/p>\n \t\t– Dennis F.<\/strong><\/span><\/p>\n<\/blockquote>\n \t\tThanks for the update. My junior miners are down the lowest in a year but they're bear market survivors and I'm sticking with them. Please keep us informed on buying into the dip.<\/p>\n \t\t– Laura S.<\/strong><\/span><\/p>\n<\/blockquote>\n \t\tCheers Jeff! I already closed a position of M based on your latest recommendation at a 30% gain in 10 days.<\/p>\n![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
<\/div>\n \tReader Mailbag<\/h2>\n
\n
\n
\n