A Frothy Mug of VIX

The Option Pit VIX Light Is Red, and Volatility is expected to drop.

Hey Traders,

You can usually tell the magnitude of a big selloff in the market by how the VIX closes.

Does the index close near the highs, meaning traders are racing for cover and buying protection?

Or …

Does this VIX close near the lows, meaning the selloff will be short-lived and traders sat and waited for the recovery.

Here is the VIX yesterday:

Not exactly traders racing for cover at the end of the day.

In fact, as the S&P 500 was hitting new day lows, VIX could barely find a bid.

Could we sell off today? Sure.

But, is VIX acting like the selling on Monday is more of a one- or two-off event than it is a fundamental shift in the market.

Let’s face it,  the S&P 500 has been mostly straight up for two weeks:

Heading into Monday, there had been one down day in the previous nine.

A small incremental selloff was needed, and that may be what we got on Monday.

So what is next for the market?

I think we are going to start heading back up shortly, especially with VIX expiration coming up on Wednesday.

I still think we could settle below 16 when all is said and done.

A Quick Play

The April 16 puts were .15-.20 cents on Friday.

They closed at .05 on Monday.

I like those as a low-risk, high-reward option.

The Option Pit VIX Light Is Red, and Volatility is expected to drop.

Your Only Option,

Mark Sebastian

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