The Option Pit VIX Traffic Light Is Yellow: Volatility Could Make Some Wild Moves.

Hey Traders,

The VIX Light is yellow … barely.

Volatility could make some wild moves.

Monday’s VIX pop was enough to push the light back to yellow.

We have a really strong VVIX (VIX of VIX) and a VIX back over 20.

So what now?

The VIX Traffic Light turning from red to yellow does not mean the VIX is going to 30.

It means the VIX could go to 30, but it could also go right back down to 17.

We are now looking for wild moves.

The VIX futures curve is still in a small contango for now:

But we are now in a position to potentially get some small backwardation in the near-term.

That said, we are going to need a serious second leg down to get there.

So how do I play this yellow light?

In this case I want to do a call spread with a put.

The January 25/32.5-strike call spread costs about $0.90.

The 20-strike puts cost $0.75.

At $1.65, I can make good money buying the call spread and the puts one-to-one.

Your Only Option,

Mark Sebasitan