Going Green, But Not There Yet

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

Hey Traders,

It’s the beginning of the week, and we have a lot to look at today …

First, we’re having a special event tomorrow (Tuesday, August 3) at 11:00 a.m. EST, where Frank and Andrew will go into detail on the actual execution of the hedge fund trading strategies they discussed last week …

You can get direct access by clicking here.

In addition, the Option Pit VIX Traffic Light is about as close to green as it can be … without actually being green.

So what does this mean?

How am I going to trade it?

The troubling trend I brought up last week continues in the VIX.

Check out the S&P 500 (Ticker: SPX) (top) and the VIX (bottom) since June 28th …

SPX is up about 120 points since the end of June …

And the VIX is up almost 4 points in that same period!

When we see this happening, that can be a real sign that there is a potential VIX swell coming.

A swell could mean the market will face some actual heat for several weeks (or months), and the VIC could potentially make a run at 30.

My other indicators are also pointing to a green light.

Here is the CBOE VIX of VIX (Ticker: VVIX):

Since initially popping in Mid-July, the index has failed to dip even to 110.

VIX volatility is also high:

Movement in the cash index has been really strong; a sign the VIX is getting ready for a strong move.

About the only thing that isn’t screaming “green!” is the futures curve, which remains in a contango in the front two months (although the back end of the curve is super flat):

While I am not ready to go long vol yet, I am being very careful how I trade, and accumulating some long VIX exposure.

I like buying the August 20-strike calls and selling the 30-strike against it to set up the beginning of a hedge.

If VIX does fade, the 18-strike puts are quite cheap.

I also like VIX puts vs index puts.

Your Only Option,

Mark Sebastian

 

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