The Option Pit VIX Traffic Light Is Yellow: Volatility Is Going To Make Wild Moves.

Hey Traders,

Last week we saw the VIX go from over 31 to under 19.

That is just an astounding move!

On Monday, the VIX seems to be recovering some of that drop as the S&P 500 is selling off …

As we head into Quadruple Witching and VIX expiration, where are things heading?

The VIX had one of the wildest ranges I have ever seen last week:

Friday to Friday, we saw a high in the VIX over 35, and the low close was below 19!

That is just an incredible move, something I am not sure I have ever seen.

The VIX curve made similar moves, but stands in contango:

We have a lot of noise this week..

We do have the FOMC meeting … which could cause fireworks.

But quadruple-witching could be just as interesting.

Remember, these December options in S&P 500 (Ticker: SPX) have been around for several years.

There is a LOT of rolling that needs to be done by traders out of December futures and into March.

This rolling action can cause huge liquidy disruptions, and cause markets to make some nasty moves up and down.

After last week's short squeeze, we are seeing a predictable move higher in VIX.

But will it last?

Monday is going to set the tone for the week after we closed at an all-time high. Can the VIX get legs under it?

Continue to keep an eye on the Russell 2000 (Ticker: RUT). While the S&P 500 was at an all time high on Friday,  RUT was down.

The top stocks are performing,  but the pile-in could end quickly…

If the money does not flow into the SPDR Dow Jones Industrial Average ETF (Ticker: DIA) and iShares Russell 2000 ETF (Ticker: IWM), we could be in for a rough week.

My lean is still short volatility. VIX is too high, but it might not matter if RUT can’t get a lift.

Your Only Option

Mark Sebastian