The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up or stay high.

Hey Traders,

Welp … the Option Pit VIX Traffic Light is still clearly green.

It appears Wednesday was a head-fake, because Thursday was a bloodbath for stocks!

The market got absolutely SMOKED on Thursday.

As I stated earlier this week, we had one of two scenarios:

Wednesday was the beginning of a bear market rally …

OR …

It wasn’t.

The answer is clearly it is not.

Here is the scary part though …

We did not come close to capitulating on Thursday.

How do I know?

Take a look at the top 10 biggest VIX trades from Thursday:

The top nine trades were all puts.

This threw me for a loop at first, then I realized that the low relative volume and the lack of calls shows a continued lack of real fear in the market.

If the big money was thinking we could crash, there would be a race for calls.

In addition, if this was a bottom, we would be seeing smart money selling the calls they already bought.

Neither of those occurred

In addition, VIX really never took off:

VIX broke 30, but there never really was a race for vol that we see as bottoms are forming.

I think the VIX is probably going to 40.

I like long calls, long butterflies, hedged with long puts.

Your Only Option,

Mark Sebastian