The Option Pit VIX Traffic Light Is Red: Volatility is likely to go down.

Hey Traders,

The Option Pit VIX Traffic Light remains red. Near-term, it looks like VIX could make a run below 20.

Heck, it is not that far away after settling at 21.44!

Near term we are seeing paper trade around VIX movement.

I would note that we saw big profit taking in the Aug17 23-strike puts again, with a trader unloading longs at $1.18.

Is the VIX going to go lower? It could. We are at a spot where VIX could crater:

Technical analysts might call this a double bottom, but remember, VIX is not like a normal index. It moves on S&P hedging …

Right now, there is not a lot of that happening near-term.

There is also little hedging in the VIX itself, and VVIX is still quite low:

I think VIX options prices are going to go up, not down, at this point.

Long term? I think VIX has the potential to explode.

Check out the large orders from Thursday’s trading:

A trader bought 30,000 VIX November 40-60-strike call spreads, looking for a move higher.

In another trade, a trader bought 5,000 of the December 35-strike calls.

Right now, VIX looks like it wants to go lower …

But long term, I think we have some fireworks in store.

So how would I play this?

Buy August puts and buy December or November call spreads.

Your Only Option,

Mark Sebastian