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

The VIX closed at 26.14, off the highs but clearly up on the day.

SPX only closed down 28.63 points. Considering it was down over 70 at one point, that’s almost a win.

So what’s going on?

The answer is pure confusion.

Take a look at the VIX curve:

Partially flat, partially backward … all high

The VIX is telling us it has no idea what is coming next.

This is typically not a good thing for markets.

But who knows? With the way the market is whipping about, we could see a 70 point up day or a 70 point down day today.

And today’s action has nothing to do with what will happen on Friday.

That’s a big break from what we normally see because markets tend to correlate. An up day is far more likely to be followed by another up day than a down day.

So what do you do?

Trade volatility!

VIX is moving wildly up and down.

Take advantage of this price action.

Buy calls on down days and puts on up days.

With the market not correlating, the odds of an up day leading to a huge down open are MUCH higher than normal.

Given the price action from Wednesday, my guess is down day today. 

Yes, we were down on Wednesday, but the end of day price action was super bullish. To me that says we open the other way on Thursday.

The alternative is to not hold positions overnight and just play SPX, which has an average daily range approaching the 70s.

That is a trader’s dream.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian