The Option Pit VIX Traffic Light Is Green:  Volatility is likely to go up or stay high

Hey Traders,

Monday saw the market fluctuate wildly.

At one point, the S&P 500 (Ticker: SPX) was down 70 points …

And within minutes, the S&P 500 was moving toward unchanged …

Before finally closing up 0.57%.

Could this be the bottom everyone keeps looking for?

I mean, the S&P 500 DID break 4,100 briefly intraday … for about an hour.

Then right around 3:15 p.m. ET in the afternoon, the index suddenly took off as a wave of algo buying stepped in.

Does this mean we found a bottom?

This is, after all, a new low for the index this year. In fact, Monday’s low was within ticks of a new annual low …

So, could this have been the bottom?

Maybe.

But there is just one thing …

The market would have to bottom WITHOUT panicking.

We have yet to see the VIX truly explode.

Yes it is high, but it’s not truly taken off to the point of forced selling:

When the market truly spikes like it did on January 24th or March 7th, that is where we can see the  market find a floor.

We have also failed to see any true pop in the VIX of VIX, VVIX:

What I am seeing feels like a crescendo … NOT the finale.

I think we might be starting to work things out, but we are not there yet. There is a move over 40 in the VIX coming before the SPX finally turns around.

In that process, we will likely see SPX break and hold below 4,000 for at least a day.

So what do you do?

With VVIX somewhat cheap, it’s hard not to like strangles in the VIX, or VIX call spreads with VIX puts as a pair.

Your Only Option,

Mark Sebastian