Headed For A Sell-Off Or A Bounce Back?

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


Hey Traders,


The Option Pit VIX Traffic Light switched to yellow, as the market continued its selling from Friday.


We are now coming into a Quadruple-Witching Expiration Week …


Now the question is…


Is it different this time?


Is the market going to keep selling off, or will it bounce back like it has for several months?


The VIX index is now over 20 again.


I have to admit I am a bit surprised it got this far, but it has.


The VIX itself has moved strongly …


The VIX futures curve? Not so much.


Why? Remember how we have been talking about the giant spread between the VIX cash and the VIX futures


That spread gave the futures a lot of cushion. We are only going to see VIX futures move if we get continuation today.



Despite the run in VIX, VIX futures are still trading at a healthy premium to spot VIX, excluding September.


But the little jump of VIX cash over the September future, along with a pop in the VVIX (the VIX of the VIX), VIX volatility, and a little change in VIX/S&P 500 (Ticker: SPX) correlation was enough to turn the Option Pit VIX Traffic Light yellow.


So what does this mean?


We are at a big inflection point:



The question is, will the pattern from the previous five expirations continue?


We will know if we get a bounce either Monday afternoon, or Tuesday.


I would LOVE to see us open down, and then pop.


Every morning jump so far has faded. My guess is that the opposite would lead to a rally.


For now, I am looking at short dated (September) calls to play a potential explosion in VIX Tuesday morning.


This would be a really short day trade, but could pay nicely.


Your Only Option,


Mark Sebastian

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