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

On Monday the S&P 500 closed up .89%, the Dow more than 1.2% and the Russell 2000 up 1.07%.

The laggard was the NDX (or QQQ), which was only up .2%.

Monday was a VERY busy day for VIX options, which traded more than 1.2 million contracts …

This is about twice the normal average daily volume in VIX options, and calls out paced puts more than 3-to-1.

So what were they trading?

Bull call spreads:

The April 30-35 call spread went up 100,000 times.

Traders also bought the June 35-50….  and even some March 30 calls that expire on Wednesday.

It’s interesting that on a day that the VIX was falling hard, traders began to load up on bull call spreads.

Could Monday be the calm before the storm?

I think the answer could be yes.

But if I am wrong (which happens every now and again!) VIX could get smashed.

So what to do?

I’m  buying  SPX puts to play downside and hedging with April puts as a pair.

I think that will pay handsomely this, especially with the FOMC meeting coming up later this week.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian