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

The S&P 500 rallied 2.37% on Friday … a whopping 86.97 points to 3752.75.

The VIX managed to close down .29 points.

Does that seem light to you … it should … because it is.

We have seen a troubling trend of rallies over the last few weeks.

When the market sells off … vol stays relatively stable…

But on rallies?

Vol actually goes up …

Up?  I thought the VIX was down … it was … but only because of the way it calculates itself.

If you look at the IVs of strike prices they were up unilaterally.

This is the IV of the 3650 strikes for November 19 AM options:

You’ll notice vol went up …

Why?  Because while the market is going up traders are stocking up on protection …

So what does this mean for you?

When the Vol goes up on rallies … it is NEVER a good thing …

Watch out for a nasty reversal mid-week.

I would take any bull action on Monday to load up on puts … exit positions … and buy VIX calls.

Questions about that? Email my Customer Care Team with the subject line Iron Butterfly.

Your Only Option,

Mark Sebastian