Option trader Mark Sebastian, of OptionPit.com, reviews the recent price action of the SPY and the VIX, sees no reason to panic, and even suggests—if he were a betting man—that he’d say that the smart money was probably selling premium into this selloff.

In the last four days, the market has given away about 45 points, a nice move north of 1% a day in terms of movement. Yet, take a look at the price action of SPY and VIX over the last six days (since Thursday of last week).

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As I review the movement in VIX relative to the SPY, I see no panic, in fact, if I were a betting man, I would say that the smart money was probably selling premium into this selloff.  It could be because it was already hedged, who knows?

The Lesson:

It’s not up or down in VIX, it’s up or down and magnitude in VIX.

The Trade:

I think the market has a strong rebound in the next day or two.

By Mark Sebastian, Blogger and Contributor, OptionPit.com