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

Hey Traders,

The S&P 500 (Ticker: SPX) dropped 44 points on Tuesday …

But notice the VIX index:

The S&P 500 fell as much as it did, and the VIX index was flat, meaning that volatility actually fell.

VIX correlation to the S&P 500 is one of the indicators I watch closely. Typically when the S&P 500 drops and VIX does not rise that is telling …

It could mean we are at a bottom for the near term.

Now, before you get too excited, we landed in partial backwardation (VIX futures trading below spot VIX) for the second day in a row:

Three days in a row and the VIX curve is almost certainly going to pop.

The point is the market is extremely confused right now …

We could be up or down a lot in the coming days.

The mixed signals say run a straddle, SPX/VIX – either or are likely to pay …

And here’s one way to make that happen.

Your Only Option,

Mark Sebastian