The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move Wildly

Hey Traders,

After getting smoked for 2 weeks straight the VIX woke up a little bit on Monday.

The S&P 500 dropped 1.5%, the VIX moved up 1.71 points (about a point when adjusted for the weekend) to 22.21%.

This is implying about 1.5% movement a day for the next month.

While the VIX bouncing off 20 is to be noted … The more interesting indicator is VVIX which has quietly woken up …

VVIX actually bottomed on the 21st of November before thanksgiving and has been moving up for 4 straight days.

This shows the market is starting to take some interest in upside options.

With the VIX curve incredibly tight at the front end:

VIX traders are sounding the alarm that 4000 may have been the top.

I am not saying we are going to tank, but we could be due for another turnaround and some selling back toward 3800.

I would be a buyer of VIX puts in Dec and Jan against long S&P 500 puts.

Your Only Option,

Mark Sebastian