The Option Pit VIX Traffic Light Is Yellow: Volatility Is Likely To Move Wildly

Hey Traders,

The VIX shot higher on Tuesday to 33.52.

The SPX dropped over 120 points.

The Invesco QQQ Trust (Ticker: QQQ) sees 40% of its index report over the next three days … 

Between only 5 companies.

This put the VIX curve into a pretty nice backwardation:

There is now a 2.4 point spread between the cash index and the front month future.

But here is the interesting thing … check out VVIX, the VIX of VIX:

There is not a lot of demand for VIX options!

VVIX at 127 with the VIX up to 33.52, is pretty darn light.

So what is next?

The VVIX suggests we could see this end somewhat soon …

Backwardation disagrees.

So here is my plan.

I would be long VIX call spreads and call butterflies.

But … I would also be hedging.  

The VIX May 24-strike puts closed at about $0.80 …

These were $4 on Monday … on MONDAY!

I would buy these near 1-to-1 vs my call spreads …

Because if the rest of earnings goes ok, we could see the market find a bottom.

On the other hand, if they are bad, those call spreads will PAY.

Your Only Option,

Mark Sebastian