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

Yes, the OP VIX Traffic Light is still yellow. We’re probably going to need to see a dip to 17 before it can turn green.

For the light, remember …

• • • Red: When I see (or foresee) the VIX heading down and volatility dropping
    • Yellow: Sometimes the VIX could go either way depending on a wide number of influences
    • Green: When the VIX is shooting up and vol is spiking

Bigger picture, we need to see the SPX break out of its range from the last 6 months.

But on Wednesday, the S&P 500 only moved 5.64 points and had an up-and-down range of less than 30 points.

So that didn’t happen.

VIX, as you would expect, dropped .48 points.

But what was interesting was the VIX futures:

This chart shows the VIX (top) and the VIX futures (bottom).

VIX futures actually fell more than the VIX index.

What the heck does that mean?

Here’s your answer …

VIX traders, in both futures and options, are anticipating a serious drop in volatility in the very near future.

Could it be non-farms? Could it be CPI?

Things might be bad enough that the market has essentially resigned itself and curled up in a ball.

I would back the truck up on the VIX March 19 puts for .75 and I would hedge them with a few calls, as VVIX is also really low.

In fact, it’s just off the very recent lows …

Low VIX, futures saying vol is going lower, VVIX near recent lows … go for it.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian