The Option Pit VIX Traffic Light Is Red: Volatility Is Likely To be Stable or Drop.

Hey Traders,

Long term, I think the economy has problems and so does the market.

But I am not an investor, I am a trader … so that really does not matter.

Short term is how I view markets.

Post-Fed minutes on Wednesday, we saw some very interesting things out of the market.

Ahead of the FOMC minutes on Wednesday the VIX shot higher, briefly threatening to break 25:

But even as the market threatened new lows and the S&P 500 (Ticker: SPX) held down over 60 points, the VIX got softer leading into the Fed Minutes.

Then, as you can see above, post-FOMC the VIX tanked.

By the end of the day, despite the S&P 500 still being down 40 points, the VIX was down to 22.13 …

Even lower than at some of the highs for the day.

So what does this mean?

Even after opening down on Thursday … I think it is likely any slack will quickly be bought.

I think it gets bought.

While VIX might not be heading to 15 anytime soon I think the high of the day we saw on Wednesday might be the high through Easter.

We might see a nice rally, and 2x Long VIX Futures ETF Fund (Ticker: UVIX)

 and ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) might get crushed.

So how am I playing it?

I’ll say it again …

UVXY could be below 10 by next Thursday. The 11-strike puts cost $0.05, and the 11.5-strike puts cost less than $0.15

Even the 12s, which were in-the-money on Monday, cost less than $0.25.

I am a buyer.

Your Only Option,

Mark Sebastian