The Option Pit VIX Traffic Light is Red: Volatility Is Likely to Drop.

Hey Traders,

While the VIX itself seems to be cooling off, and potentially heading toward 15 again …

There is a sector of volatility that is exploding.

The opportunity to make money trading this area of the market is potentially huge.

Commodity and materials implied volatility (IV) is up …

But no area of the financial markets has seen the same kind of under-the-radar pop as bonds.

CBOE 20+ Year Treasury Bond ETF Volatility Index (Ticker: VXTLT) is the VIX of iShares 20+ Year Treasury Bond ETF (Ticker: TLT). 

Check out the move it has made:

VXTLT touched over 20 on Monday, and is currently at 18.65.

That would put it about 2 points higher than the VIX index itself.

That is right; a basket of US bonds has a higher implied volatility than the S&P 500 (Ticker: SPX)!

Why?

Well if you have listened to the discussions I have had with Bill Griffo over the last couple of days you probably know …

The Fed is trapped.

Inflation is not going away.

And who knows where interest rates might go …

Yes the Fed is likely to keep the Fed Funds rate low …

But as they taper bond buying, they will  have less control on the direction of the actual bond market.

This is the first time we could see bonds somewhat free to roam in about two years.

The bond market is saying “look out!”

When will this bleed into the VIX?

Probably not until next year … but it will.

Your Only Option,

Mark Sebastian