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

On Thursday the market ended the day up 44.21 points, good for a 1.1% rise.

VIX dropped .35 points.

For the rally we had, that’s pretty soft.

In fact, volatility was pretty much bid all day on Thursday until a few sellers came in at the end of the day.

The Russell 2000 tried to drop all day before finally getting a bid at 3:45:

Everything I know about the market says we should have sold off … but we did not.

Then there is the VIX curve:

It remains way too tight cash-to-front month. I think something big is coming…

Now, the futures are usually right. That would mean a face-ripper of a rally…

This would mean VIX is too high…

But is it? At 18.73, it is pricing in movement of only 1.19 points a day. That’s a lot actually, but low considering the realized volatility of SPX:

20-day vol is above implied….

What if we don’t have a face-ripper, but instead see maybe a one-day selloff and then a slow grind lower…

We could very well be set up for that.

I would short SPX and short VIX as a pair.

The best way was to do that … jjoin Spy Master. Andrew Giovinazzi explains exactly how you can lock in major profits here.

Your Only Option,

Mark Sebastian