How Does My VIX Traffic Light Work

The Option Pit VIX Light is RED, and Volatility Is Likely to Drop.

Hey Traders,

Every day at the top of this letter, I reference the Option Pit VIX Light.

It’s a proprietary tool that I’ve developed over 20 years as a trader to help guide my trading strategy

And I have walked through them a couple of times, including here.

There are four main components, and the first is …

VIX Term Structure: How the VIX is related to VIX futures.

Is the VIX in a contango? That’s when VIX term structure looks like it does in the chart below …

This is also what the VIX futures looked like at the close on Wednesday (March 24).

Contango is an industry term for the VIX trading beneath month 1 (April, in this case) and Month 1 trading below Month 2 (May), etc.

As bad as the two days have been, I’m not worried about a major spike in volatility because the futures term structure has held pretty constant — despite a 50-point drop in the S&P 500.

Now, when we enter backwardation, that is a different story.

Backwardation is a sign that the market is really stressed, and it’s when the VIX term structure looks like this:

As you can see, VIX is trading above Month 1. Month 1 is above Month 2,  etc.

When we see this, the market is stressed …

And this is what the VIX term structure looked like exactly one year prior to Wednesday, on March 24, 2020.

You’ll recall things were a little unstable at the time.

Anyway, this is the most important part of how the Option Pit VIX Light works.

It is the basis by which I am able to determine whether to be naked long or to have a hedge on.

Using it has helped me avoid major corrections (like the one in March of 2020), and to hop in long like I did in earlier this month when the VIX had a major spike.

Now …

There are three other factors that go into the VIX Light 

And I could walk you through exactly how I use these here …

But I would rather show you.

That is why TODAY I am going to demonstrate how I use the VIX Light … WHILE ALSO LIVE TRADING starting at 9:30 EST.

Not only that, but throughout the day I will have a host of other speakers showing you the ins and outs of volatility, technical analysis, politics and the Fed.

Heck, we even have a Crypto expert lined up!

It’s all part of the first-ever Option Pit Round Robin mentoring event …

But I need you to join me LIVE, because I am not going to share the recording. This the type of stuff my students PAY A LOT OF MONEY FOR.

And you can register for free right here!

Yes, we’re making this unprecedented access available to you for free — and for today only!

I hope you can join me.

Oh, and one more thing …

The Option Pit VIX Light is RED, and Volatility Is Likely to Drop.

Your Only Option

Mark Sebastian

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