The Option Pit VIX Traffic Light Is Yellow: Volatility Is Going To Move
Hey Traders,
The VIX Traffic Light stayed persistently red … but has finally switched to yellow.
Tuesday was a classic example of why I like to wait to change the light …
The VIX closed about flat, after spiking in the morning …
VIX futures got crushed …
But even after closing flat-ish, the VIX is still over 19.
This is way out of whack with how much the S&P 500 (Ticker: SPX) is actually moving …
Check out realized volatility on the SPX:
The dark blue 60-day historical volatility (HV) is 11 …
Every other measure of realized volatility (10-day, 20-day, and 30-day) is under 8!
Yet VIX is 19?!
This cannot stand …
VIX needs to drop like a stone …
Or the SPX needs to explode …
So what’s it going to be?
Well, remember the FOMC is still pumping $100 billion a month into the market …
Earnings are over …
We are heading into Christmas, when the SPX typically rallies …
On Tuesday, every time algos tried to crush the market, it got bought, until it ended the day up.
I think we are due for a FACE RIPPING rally in the next couple of days.
It could be around Black Friday or could even happen today …
That said, we could still fall apart.
So what to do?
On Tuesday in Volatility Edge we bought VIX puts with a hedge …
I’ll tell you the hedge side of the trade:
We bought the VIX 24-32.5-strike call spread for $1.00.
Against that, we bought puts.
This is literally the only way to play VIX right now because it could make a wild move.
Your Only Option,
Mark Sebastian