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The Option Pit VIX Traffic Light Is Yellow: Volatility Is Likely To Move.
Hey Traders,
It has been a rowdy few days on the market …
Yesterday we watched stocks fall hard in the early hours of trading, only to reverse course and finish higher.
It seems yesterday’s end-of-day rally may simply have been a rope-a-dope for traders …
The S&P 500 (Ticker: SPX) had nearly a 100-point range yesterday, with a low of 4,200 and a high of 4,299 …
So far today, we are also seeing a wide trading range, but all to the downside, with the SPX is down around 90 points as I write this.
As you might expect, VIX is reacting in kind … trading between 26.90 and 31.60 yesterday, and is currently trading 4.60 points up on the day.
A yellow light tells us VIX is going to make a move … and it certainly seems to be doing so.
But what do we expect next?
Well, the VIX futures curve is still in backwardation, with futures trading below spot VIX.
This alone would be an obstacle to the Option Pit VIX Traffic Light turning red …
Add to that, we have a massive week for earnings.
41% of the Invesco QQQ Trust (Ticker: QQQ) reports over the next three days …
And we have a slew of the biggest mega-cap earnings on tap, including Meta (Ticker: FB), Apple (Ticker: AAPL), Amazon (Ticker: AMZN), Alphabet (Ticker: GOOGL), and Microsoft (Ticker: MSFT).
All it would take is one surprise from one of these behemoths to shake markets up even more.
All this is to say …
Don’t get too comfortable … and don’t assume that a VIX yellow light means movement in one direction or another …
Your Only Option,
Mark Sebastian
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