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

The VIX closed down .63 points to 19.97: back below 20.

Why? 

SPX only closed down 6.26 points, and the NDX – which was down a decent amount at one point – only closed down .53 points.

XLF, XLE, and XLI were strong. The Dow Jones actually was the best performer of the day.

This is evidence of the ‘risk on’ trade I discussed yesterday playing out.

The Mega caps really lead us lower.

So how does this play out?

Take a look at the VIX curve:

VIX and VIX futures dropped, but the spread between VIX stretched a touch to 1.7 points.

It closed about 1.5 on Monday.

While contango is stretching out, that’s bullish markets and bearish volatility.

So how does this play out? 

Expect tech to continue to pull back, expect rates to begin going up, and look for banks and energy to continue to rally.

With this, the SPX might not do much because of the push and pull of money moving around.

I expect VIX to continue to feel pressure.

I would short QQQ and Short VIX as a pair.

Questions about that? Comment below!

Your Only Option,

Mark Sebastian