The Option Pit VIX Light Is Yellow: Volatility Is Going To Move Wildly.
The S&P 500 (Ticker: SPX) had a VERY ugly close on Wednesday:
It caused the VIX and the VVIX (the VIX of the VIX) to pop higher, pushing the Option Pit VIX Traffic Light to yellow.
The good news is this creates a ton of opportunities for VIX traders.
Here is what I am going to do about this yellow VIX light …
The VIX is now over 20, and has bounced between backwardation, flat, and contango (futures trading increasingly higher than VIX spot):
As I write this, VIX September futures are trading at a small premium to the cash.
A 22.5-strike VIX future is pretty darn pricey given the small move we have seen.
In addition, VVIX is WAY up …
That said, VVIX is looking a little stretched.
At this point with the light yellow, and both the market and the VIX flopping around, there is a great opportunity to trade hedged call spreads in the VIX.
The VIX September 25-35-strike call spread only costs about $1.30. That will be a nice hedge against a portfolio …
But we all know the speed with which the VIX can drop.
So at the same time I would buy the VIX call spread, I would also buy the VIX September 18-strike puts …
The VIX could EASILY be back to 16 by labor day.
The 18 puts only cost $0.60. They could more than make up the cost of the call spread if the VIX does recede quickly.
Your Only Option,