Why the VIX Could Explode

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I've been vocal about my expectation that the VIX could go under 11, and it's now at 11.08 — just about there.

After further analysis, I'm starting to suspect that it will explode.

The VIX has dipped below 12 during 10 of the last 16 trading days.

This is very reminicent of what we saw in July-August 2015.

Between 7/15/2015 and 8/5/2015, the VIX was sub-12 on 7 of 15 trading days — a similiar low-volatility streak.

That led to the 8/24/2015 mini-crash, which saw the VIX trade as high as 53.29 intraday before closing at 28.

We can also go back to August-September 2014.

Then, we saw the VIX go sub-12 for 15 of 25 trading days. It then broke 30 that October.

So the pattern seems to be a few weeks of nothing followed by a small grind up in the VIX, and then a VIX-plosion.

However, if we go back to June-July 2014, we see a very long pattern of nothing — 39 of 45 days with a sub-12 VIX.

If the pattern holds (we are dealing with tiny sample sizes here so this isn't even close to scientific), the VIX could easily be over 30 within a couple months.

The only problem is, that spike could happen next week… or in 2 months.

That said, I'm dipping a toe in the water to speculate on a VIX-plosion.

SPX just hit a new record high at 2186.65, and I am now long VIX October 20 calls from $1.45.

Downside risk is 100% if the VIX goes flat or only rises modestly, but I suspect the VIX will be over 30 within 2 months.

The reason I'm putting it on now is that it feels like the absolute hardest trade, which sometimes mean it's the best trade.

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