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

The VIX was up a lot relative to the S&P 500 on Monday

With SPX dropping slightly more than 1%, VIX rose 2.34 points to 32.26,  now pricing in daily movement of more than 2%.

The VIX curve is now firmly in backwardation:

This is going to put a huge tailwind behind UVIX and UVXY, along with VXX.

VVIX was also strong, closing at just under 110 and appearing to be in breakout mode:

Part of the reason for this could be the one-sided paper we saw going up on Monday.

There was MASSIVE upside call spread buying throughout the day:

In one trade, more than 600,000 contracts were traded with a customer collectively buying 300,000 50-60 calls spread across October and November.

We also saw another 60,000 upside call spreads go up in VIX November options.

This buying is what drove VVIX up so much.

So how do you take advantage of this?

With VVIX high, call butterflies and call spreads are cheap.

I would be a buyer of November bull spreads, hedged with a bit of what is still relatively cheap downside puts.

The paper we saw on Monday was alarming and adds to the huge upside open interest that is already on in November and beyond.

Your Only Option,

Mark Sebastian