Hey Trader,

The S&P 500 rallied on Monday closing the day up 29.97 points…a nice start to a week after a pretty rough second week of the month.

Despite selling off last week and the nice rally on Monday…VIX is falling out of bed again.

It closed the day at 13.80, given that on Monday VIX experienced a weekend effect (generally VIX is going to be up about .75 points or so on a Monday)…VIX was down.

SPX has been oscillating around the 50-day moving average since the beginning of the month.

Typically, we can expect SPX and VIX to move in opposite directions…but this week is different.

Even though SPX is lower than where we closed on 8-29, VIX is also lower.

Here’s why…

Take a look at the movement:

Since the big move on the 29th, VIX has gone nowhere. SPX has been holding about a 1.5-point range during that time, unable to break 4425 or 4500 meaningfully.

Realized volatility in the last 10 days is going to fall into the single digits.

This means that in all likelihood we are going to see the VIX push toward 12.

With that in mind, many might think…”Well, when that happens I want to go long volatility?”

Let’s look at the chart:  

With the right strategy, going long vol has worked, but it is not an instantaneous turnaround.

VIX can stay around 13-13.5 for a while.

And as realized volatility falls like a brick, buying long volatility is not going to be easy.

But…there is a way to play it.

Pair indexes against each other.  In this case, I would go long vol in spx and short volatility in the VIX itself.

But there are other ways to approach this.

I’ll go through everything you need to know about trading indexes and equities against each other tomorrow. Click here to check it out…

Questions about anything? Leave a comment below!

Your only option,

Mark Sebastian