Buckle Up For This Yellow Light

The Option Pit VIX Light Is Yellow: Volatility Is Going To Move.


Hey Traders,


With the ending of the bloodletting yesterday, and the subsequent rally today, I know everyone feels lovely …


But should you?


While we are not in a ‘green light’ situation after yesterday, we are still really close …


Today’s yellow light means we could see some wild moves …


And the VIX itself is saying, “yeah, you probably will.”


Curving Back To Short Vol Plays?


The Option Pit VIX Traffic Light is back to yellow.


This is because the VIX futures curve has fallen back into a contango (where futures prices are trading above spot VIX), and some of the volatility in the VIX itself is starting to fall off.


But take a look at the curve:



The October future is sitting right on top of the cash index, tracking it surprisingly well.


This means that if we get a push higher in VIX, we could see a nasty move in the VIX futures.


Futures briefly went backward on Monday, and they tend to repeat that pattern at least once before volatility really collapses.


That said … that is not always the case. We do see pops and drops …


This pop on Monday felt more like the beginning of a swell than a simple VIX spike …


But …


If it is a spike, after the FOMC today, there might be a really good opportunity to get short volatility …


Your Only Option,


Mark Sebastian


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