The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
The VIX rallied .97 points on Wednesday. The S&P 500, meanwhile, was down just over 46 points, a touch over 1.1%.
Not a crazy day on its surface…
But Wednesday was, indeed, a crazy day.
What happened?
VIX futures and VIX options, that’s what.
VIX futures exploded higher on Wednesday. At one point they were up about 1.27 and closed the day above 20.
That is a really strong move relative to the VIX index.
But then there is the VVIX (the VIX of VIX) …
They CAME AFTER VIX options on Wednesday:
VIX option prices gapped higher and demand stayed strong all day.
The result? VVIX closed at its highest level since October of 2022
Traders were buying in February, but mostly buying March options.
To put things in perspective, my VIX options theoretical values were about .25 too cheap for at-the-money options at mid-day.
Remember, the VIX guys are usually a step ahead …
For VIX to be somewhat stagnant and VIX options to be exploding higher, that means there is something brewing in the near term that many of us might not see.
Mark My Words: It could be a rally or a sell off in SPX…but the move will be very strong.
I would watch out.
The play remains short VIX and short SPX for now, but keep on the lookout for a huge move in the S&P 500 … it is being predicted by the VIX market.
Your Only Option,
Mark Sebastian