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

Hey Traders,

The VIX futures curve has flattened significantly over the last couple of days. 

On Friday, the S&P 500 (Ticker: SPX) had a nasty bounce back above 3900, and could head to 4000.

So does this mean the selling pain is over?

Could we be on the move back to 4500?

On Friday, the SPX bounced off of the -20% level from its highs on January 4th. 

This is the second attempt the market has made to close in bear market territory.

With the bounce on Friday, the VIX curve has flattened up aggressively and now is in a bit of a contango:

So does this mean the selling is over?

The answer is really in the next move the market makes.

If SPX can actually close above the last high on May 17th – which was 4090 – we could see a push higher.

But if that does not hold, we are going to go a lot lower.

We have seen key levels of support hold twice, on two different occasions: 4000 and then 3900.

The third time we hit that level, the market broke lower.

We will be in for the same thing if we approach 3815 again.

If that breaks, the next stop is 3700, and then who knows.

So how do you play it?

The VIX of VIX, VVIX, is now cheap:

This means options on VIX are cheap.  

I really like bull call spreads matched up with puts in VIX.

Your Only Option,

Mark Sebastian