The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up or stay high.
Hey Traders,
The Option Pit VIX Traffic Light is still green …
But we could be in a yellow light sometime Thursday, and potentially red by Friday.
Wednesday, we saw a massive bear market rally … not a huge surprise given what we have seen the last two Fed meetings (as we pointed out ahead of the meeting).
The VIX curve is back in contango, with futures trading higher over spot:
The VIX of VIX, VVIX, got SMOKED as well on Wednesday:
So what does this mean?
Leading into options expiration on May 20th, we could be due for a rally, somewhere towards the 4,350-4,400 area…
But …
As we head into expiration, I think the sellers will return.
For vol traders, this means that puts in VIX could pay off faster than you think.
It also means that profits need to be taken as you trade.
If the VIX gets below 20, it will likely be time to start loading up on hedged call spreads.
For now though, if the market has follow-through on today, I think you want to own the 20-strike puts for May which still only cost $0.10.
Your Only Option,
Mark Sebastian