The Option Pit VIX Traffic Light Is Green: Volatility is likely to stay high.

The S&P 500 was up more than 1% again on Monday.

This was a bit of a surprise.

Why?

Bonds were soft on Monday:

China got WRECKED on Monday:

Maybe the market is finally resilient and sees the light at the end of the tunnel?

The answer to that question is no.

Instead, we are in a mini-short squeeze.

Strike volatility continues to go up in SPX.

The above is the vol on the 3650 puts for the November settlement in SPX options.

Now, that said …

We are not at the end of the selling … but we may be in the 7th inning.

We are now below the 5-year trend line for the S&P 500

We are also a few weeks into an SPX death cross.

They do not last forever, and my worst-case scenario of 2950 is probably off the table – unless global conditions get worse

I think we retest lows and still touch the pre pandemic highs around 3400.

Here’s The Plan

At that point, it might be time to buy.

In the meantime, SPX has daily options that are great for trading this crazy market.

The big dip to 3400 is probably close … likely this contract cycle.

I like long VIX at the 32.5 strike and short at the 40 strikes.

You could short term pair that with a call in SPX.

Questions about that? Drop a comment a below!

Your Only Option,

Mark Sebastian