The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
The VIX closed down .89 points on Wednesday to 22.01, VVIX took it even worse falling to 77.65.
VIX might not be low, but vol of vol is super cheap…why?
The answer lies in the S&P 500.
Movement has fallen off a cliff.
Check out 10 and 20 day realized vol in the SPX:
10 day is now approaching 16%, and 20 day is approaching 18%.
Movement has died in the SPX.
Even Average True Range is falling…
So what gives…
The SPX is coiling:
It has held an extremely tight closing range for the past 8 days.
It could coil longer, but the index might be ready to break out.
That is the only reason the VIX can be 22, while 10 day movement is 16.95…
But which direction will it break out?
Licia Leslie likes to call something similar to what we are seeing “frying pans”.
While this is not quite that, I think the end result is the same.
SPX is about to break out…and it is not going to be pretty.
With AAPL and MSFT finally showing some weakness, we may finally see the moment we have all been waiting for: the time to actually buy.
But first, we have to see the SPX fall apart.
This is unlikely to be a dramatic two or three day move…but more likely something that is slow and grinding over several weeks.
This is going to create the chance to buy.
When? Could be a few weeks…at what level?
Join me in Nitro Trader for my next quarterly conference call in a week and you will find out…
Your Only Option,
Mark Sebastian