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

On Friday the market melted higher with the SPX running up 1.61% to 4045.64

VIX got crushed, closing below 18.50 at 18.49.

VIX futures also fell hard…

The drop in the curve across the board is hard to ignore…

This is apparently directly related to the belief that there is no way the Fed is going to raise .50 in the next few quarters.

So, what is the take?

How do you trade this?

Near-Term

Vol is probably going lower.

We have seen a pattern of lower highs and lower lows in VIX. That trend is going to continue.

I think VIX is going to get into the 17s.

I am targeting this run to break or touch the low from February 2nd of 17.06.

March might be a very low settlement.

March 18 puts are .38…that is too cheap.

Medium-Term

We are going to have another cycle lower at some point, probably in the next few days.

At that point the market is going to try to test the 200-day moving average – and one of these times it is going to win.

There IS going to be a serious retest when you do not see it coming.

Be ready…

Long-Term
VIX is going to 14 or lower.

The trade I like most here are the 16 or 15 puts as long-dated as one can buy.

They are going to be gold, because we are going to see a 12 VIX at some point in 2023.

Your Only Option,

Mark Sebastian