The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to be wild

Hey Traders,

After 2 days of VIX underperforming the S&P 500,  it finally happened,  the S&P 500 started a relief rally.

Over the course of two weeks, the S&P 500 gave away 400 points high to low.

Thursday saw a huge turn around from down over 40 … to close up 11 points on the day.

VIX fell .31. Part of the reason it was only down a little was the expectation of today’s non-farm payroll numbers.

There was a greater than 75% chance we would pop on non-farms, we’re currently up slightly int the S&P 500 during mid-day trading.

But that does not mean the selling is over…

We could get a pop and then drop (which is what we’re seeing mid-day) or a rally today, only to sell on Tuesday.

Its telling that the September future and the VIX cash are still on top of each other:

So what is the plan?

The trend is likely your friend for the day.

I would ride it, but I would not be looking to hold overnight.

Assuming we are up on Friday, the UVIX 10 puts closed at about .15…

They could pay as there is a lot of room for VIX and VIX futures to fall.

I will be pecking at those if all goes as planned…

If I am wrong, I am probably REALLY wrong and would look at the 10.5-11 call spread for less than .10.

Your Only Option,

Mark Sebastian