VIX Puts Active, Broke 50 Day Moving Average, Looks Double Toppy

Last week I was looking at the chart of the Volatility Index (VIX) and saw two things. It was flirting with the 50 day moving average and it looked double toppy.. So I decided to head over to Option Monster to see what was going on and checked out their Volatility Sonar report on 12/3 and 12/4. Surprisingly they saw thousands of May and April '09 $30 puts trading which is a bet on lower volatility in the future. Add on to that a futures curve trending lower and you have a bullish scenario for the market since VIX:S&P are inversely related.

Fast forward to Friday's close and the VIX actually broke below the 50 day moving average when the market rallied at the end of the day. Also the index futures are up big tonight. The Dow is +190 and the S&P +22 as of 1:32am est. If the break below the critical 50 day ma can be sustained it would bring a lower VIX and a nice profitable trade (less the premium paid). Awesome.

Watch the videos and also provided are VIX charts and a snapshot of the futures curve with data via the CBOE Futures Exchange as of Fridays close (12/5/08).

12/3/08: 5k May '09 30 Puts Traded (Optionmonster.com)



12/4/08: 5k April '09 30 Puts Traded (Optionmonster.com)




VIX 4 month chart (Source: Scottrade)


VIX 1 yr chart (Source: Scottrade)




By the way it looks like the risk appetite trade is coming back on tonight. Oil and the AUD/JPY carry trade are on fire right now.