The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to swing.

Hey Traders,

The Option Pit VIX Traffic Light briefly flickered to red …

And when markets opened on Monday, it certainly looked like red light conditions.

Lately, “red light” conditions have been where I have seen traders stepping in to buy ..

The VIX futures curve is in contango, with futures trading above spot VIX …

Remember, we are just ahead of VIX expiration, which takes place Wednesday morning.

Futures stop trading at tomorrow’s close.

Here is the current state of the curve:

So I am less concerned with the July futures, and more concerned with the large spread between August and spot VIX.

There is some potential there …

I am also keeping a close eye on VVIX.

Like I said, red light conditions are when we have seen vol buyers step in.

VVIX, which represents the VIX of VIX, seems to be slightly, slowly trending higher, after hitting a string of multi-year lows.

But with VVIX still below 100, this is still pretty low implied volatility being factored into VIX options.

With that said …

I am a buyer of the August 23-strike puts against a long call butterfly.

Your Only Option,

Mark Sebastian