The CBOE Volatility Index (commonly referred to as the Fear Index) closed last week at $16.69. This is significant because the VIX hasn’t stayed under $20 consistently since the pandemic began in February 2020!
The VIX has been eyeing this key support level since mid-November, but rising Treasury yields kept it from breaking through.
Now, we are 13 days into April and it’s still dropping:
What’s this mean?
The saying goes “when the VIX gets low, it’s time to go” meaning it’s time to sell.
The reasoning behind it is that the market has become complacent and a correction could be coming.
This, combined with fears of corporate tax hikes, inflation, and COVID has some feeling bearish.
"A fall below 20 takes this volatility index to pre-2020 levels and a drop in the VIX would be a risk-on signal." - Tom Lee, Fundstrat
🚨 UNUSUAL OPTIONS 🚨
Somebody out there is betting big that this sub-20 dip won’t last too much longer. An unknown trader purchased a total of 200,000 call contracts wagering the VIX would rise up towards 40, no lower than 25, in July:
The trader likely made the purchase through several tranches, first buying 100,000 contracts in two block trades, then coming back for 100,000 more. They paid $3.40 for calls at 25 and received $1.30 for selling 40 calls. - Bloomberg