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

Hey Traders,

One day does not a trend make.

But Tuesday’s trading action was intense. 

To start, VIX futures picked up just about every dollar they dropped yesterday …

VIX itself perked up 2.46 points, closing at 21.03, and creating what is now a normalized contango futures curve.

And while the VIX futures curve is still in contango, it made a nice move higher:

VIX futures are now trading at a 1.80 premium to the cash index …

This is actually completely normal, given the number of days to expiration.

The futures curve itself is still pretty steep, with April-dated futures trading 1.65 points below May.

If you are looking for volatility over the last few days … 2x Long VIX Futures ETF Fund (Ticker: UVIX) has it:

The VIX exchange traded product (ETP) went from touching 17, to touching 16, back up to 16.50 …

That is some nice range. 

As trading volume picks up in the new product, this is going to be one you want to trade into an event like the Fed Minutes.

For now, with the VIX futures curve normal, I would still be looking to short vol, but I would also want to hedge.

In ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY), an idea I like is long puts with a long VIX call spread on a ratio. It is quite possible one might be able to make money on both ends that way.

Your Only Option,

Mark Sebastian