The Option Pit VIX Traffic Light Is Green: Volatility is likely to stay high.
The VIX dropped 1.18 points on Wednesday … on a day the S&P 500 dropped 28 points.
But the VIX curve is what I was really watching …
The VIX curve is now in contango (futures prices higher than spot prices).
(Now, the back end of the curve is in backwardation, but the front three months are in a straight contango.)
At the same time, VIX volatility (VVIX) is about to break 80 again …
In fact, VVIX is just above its one-year low…
This actually trends against the SPX, which just bounced off the 50-day moving average:
Vol dropping and the market bouncing off the 50 DMA.
As the market has been rallying, we talked about the vol going up. We also discussed how vol seems to drop with the market.
So what is up?
The SPX just topped out
We are going to go back to slowly rolling over. I am not looking for a huge drop – although it could happen post AAPL.
VIX is going to rally because of a function of SPX – but might not explode – unless AAPL really dumps.
That said, I think traders want to be long VIX calls and/or long SPX butterflies…
At the same time, I would aggressively be buying LONG dated puts.
And I’d join me in NITRO TRADER before today’s 4 p.m. quarterly meeting.
Your Only Option,
Mark Sebastian