With options on the volatility index (^VIX) having expired on Wednesday and the rest of the options world of equities and ETFs expiring today, we caught up with Jon Najarian, co-founder of TradeMonster.com for a check on how the smarter options traders are positioning themselves for the rest of the year.
Why do you care? For one reason, on July 28th of this year Najarian told Breakout options traders were positioning for a huge leg down in stocks. The S&P500 was at 1,300 at the time.
After a crazy 4-month ride, Najarian tells us November options on the volatility index itself "went out with a whimper" on Wednesday. Despite Thursday's spike, Najarian still thinks VOL will "hang in with a VIX somewhere between 28 and 32," with some wiggle room on either side. For the record, the VIX closed at 29.44 yesterday, double the mid-teens norm we saw in early of 2011, but a far cry from near 45 where it peaked near the October stock lows.
Those inclined to trade volatility itself into the rest of the year better hurry as far as Najarian is concerned. If you're going to "bet on a higher VIX do it between November expiration and the end of the month," he says. "December is a snoozer."
Elevated volatility isn't just a "tell" for market action but individual stocks as well. Unusual action in options contracts, excessive bets on a swift move, can be good indications of the collective wisdom of the options markets. Najarian says he "buys the retailers on Labor Day and sells them Black Friday."
But he says consumer-related large cap tech stocks are still in play for the balance of 2011. He specifically notes action in Broadcom (BRCM), Marvell (MRVL), and Corning (GLW) as a way to play the heavy and touchscreen glass so prevalent in gadgetry.
Volatility hanging around 30 doesn't suggest smooth sailing but at least the markets will stay afloat, at least over the short-term and in the eyes of the ever skittish options markets.