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

The VIX closed down .64 points on Thursday…

This is despite a pretty nice drop in the S&P 500 in the final 10 minutes of the day.

But here is the crazy thing …

Despite the SPX dropping like a stone … vol NEVER caught a bid.

Below is a chart of the S&P 500 over the VIX:

There is something VERY important to notice here.

When the S&P 500 took off around 3 pm ET, the VIX tanked …

But when it collapsed back near the lows of the day, VIX never really caught a bid.

Despite the S&P 500 closing 8 points off the low of the day, the VIX closed over a point below the high of the day.

This is almost ALWAYS bullish …

But at the same time the VIX futures were saying … EH … Look over here:

Futures are still in backwardation …. almost always bearish …

So who is right, the futures or the VIX …

The answer is both …

In the next day or two, I think we will have a short covering rally potentially back to 3850 or even 3900.

Then …

We continue back down.

So how do you trade this?

I like long SPX and Long VIX as a pair right now

Alternatively, I could buy a VIX straddle as VVIX is dirt cheap.

Your Only Option,

Mark Sebastian