The Option Pit VIX Traffic Light Is Green: Volatility Is Likely To Stay Elevated.
Hey Traders,
With the escalation of the Russia/Ukraine conflict …
It is perhaps not surprising that the Option Pit VIX Traffic Light is flashing BRIGHT green right now …
But after the initial jump this morning, some of the vol is starting to come off.
Have we topped out?
Well, the VIX futures curve is still fully backwards …
Which as you know, does not point to falling vol.
However … I do think we may be topping out … or will be in the near future.
Why is vol topping out?
Looking back at history … volatility tends to rally into a war, and drop afterwards.
Which makes sense when you think about it …
The “will they, won’t they?” has been answered, and it is no longer an uncertainty.
Take a look at the original VIX, and how volatility behaved during the Gulf war …
Chart courtesy StockCharts
Kuwait invaded Iraq in early August of 1990 … you’ll see volatility peaked early on, and then came off at least somewhat …
Until the U.S. involvement in early 1991, which saw a quick peak, followed by a quick drop … even though the war was still raging overseas.
The uncertainty is what creates volatility …
And as things start to play themselves out, vol comes off.
Today in my Volatility Edge program, we closed our long March 30/45 call spread today at $3.50 – that’s a 70% gain.
Your Only Option,
Mark Sebastian