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

Happy New Year!

(And remember, today is the final day to tell someone Happy New Year, according to Larry David.)

I have to say I am a bit surprised by the price action of VIX in the final week of 2022.

Generally speaking, VIX during the last week of the year is going to see the market meander about and volatility drop.

That did on happen.

Despite a long weekend on the horizon, VIX ended up on the week

But why? It’s not like the SPX rally made that big of a move.

Realized volatility has fallen off a cliff …

Coming into Tuesday,  expect the VIX to open up. Then it’s all about the market.

Given the chop of the final week of the year, merged with rising volatility, I think the first week of the new year could be what kicks off another period of selling.

Like 2022, it will be slow, boring and painful. There will be pockets of strong rallies and a few sharp sell offs.

But for Week 1,  VIX is probably going to stick about where it is … and SPX is probably going to break 3,800.

Now, for the LONG term of VIX,  I think the market’s horizons are brighter. I like VIX to normalize back into the teens by the middle of 2023.

I would be looking at long-dated puts in VIX, matched with shorter dates puts in SPX.

Your Only Option,

Mark Sebastian