The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
The S&P 500 is a snoozefest!
At least for the last three days.
CPI had almost no effect.
Earnings from the banks … Nada.
Goldman Sachs was down 6.44% on Tuesday. The S&P was down a whopping .2.
Can this trend continue?
Are we entering a new regime for volatility?
Is the VIX finally going to get to 15 and stay there for months?
The answer is not likely.
Under the surface, we are seeing some hedging areas heat up, notably in VIX options.
Remember when I told you that VIX options were WAY too cheap recently? Well, I did – and they were.
They are not anymore…
VVIX, the vol of VIX, is up 10 points in the last seven trading days.
Demand for VIX options is increasing, even if SPX options aren’t seeing it yet.
We saw a similar pattern from VVIX around the end of November into December. We know how that turned out.
While I think longterm vol is going lower, I think we will get a little wake up call in the next few days for VIX – and a trip back over 21, maybe up to 24.
Plan accordingly.
Your Only Option,
Mark Sebastian