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

Thursday was a surprise.

After all the trouble on Wednesday, there was not a good reason for the S&P 500 to rally 66 points.

But it did!

StiIl, I don’t buy it.

And neither did VIX.

We are heading into a long weekend with the market up big time.

Yet VIX is only down .70.

In fact, for most of the day Thursday, vol was actually up.

Take a look at SDEX, the Nations SkewDex:

While skew has been trending down, on a day the S&P 500 was rallying hard, the index was up.

This means there was demand for puts. Traders that know markets were not buying what they saw on Thursday.

So what does this mean? We might get some window dressing today, though probably not.

More likely we see a complete reversal of the action we saw on Thursday.

I will be a buyer of SPX puts expiring on Monday and a buyer of VIX puts as a pair. This is a  trade that has worked and will continue to do so.

Mark Sebastian