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

Of course, as soon as I go on a short vacation … everything goes sideways.

VIX blew higher last week moving from near 18 to over 30 to now back below 24.

You can see the movement in the curve over the last few days:

In 4 days we went from contango to backwardation to contango at a much higher level.

You can see how wild the VIX index itself has been over the past few days:

The moves have been wild, but the question looms …

Is this a spike or a swell?

Remember: a spike is when the VIX pops and then drops in only a few days.

A swell is when the VIX cascades higher, eventually taking us to a point of true market fear.

This might be that, but we don’t know yet.

What I do know is that Tuesday solved nothing.

Yes, the curve is back in contango, but it is extremely flat. Plus, the cash is still trading at a premium to future.

Another important thing to note is how much the market is actually moving around. Check out the pop in SPX average true range (how much it is actually moving every day).

It is exploding higher.

So with everything set up the way it is, how is this going to play out?

I’ve got to tell you … despite the pop, VIX options are actually pretty cheap.

March 22 puts are only about .75. I can also buy the 26-30 call spread for .50. That’s a pairing I can make money on trading.

Andrew Giovinazzi and I trade VIX and SPX daily in the Trading Desk. 

If this past week has made you realize you need to up your volatility trading game, the Trading Desk is for you.

Questions? Drop a comment below.

Your Only Option,

Mark Sebastian