The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.

Hey Traders,

Friday was a huge day for the S&P 500. It rallied 75.03 points, up 1.85%.

The VIX got smoked falling to 17.19, not far off the lows before First Republic Bank (Ticker: FRC) fell apart.

If you look at SPX over the last couple of days, we have had a ton of movement…

And have gone nowhere …

We are down 6 points since April expiration…

But take a look at volatility.

It is starting to really pick up:

At the same time that VIX is testing new lows, volatility is actually drastically increasing on both the 10 and 20 day timeframe.

One could argue that volatility is actually too cheap at this point.

This is part of the reason the VIX curve is so steep – the futures are not fully buying into the cash index move from Friday.

They’re telling us that there is more movement coming.

The solution is actually pretty simple – buy SPX options, and use VIX futures or VIX puts to hedge off the risk of volatility re-collapsing.

Basically, we might be due for more movement, and market liquidity has dried up (if you are not AAPL or MSFT).

Trade as such – because those shoes might drop soon.

Questions about that? Comment below!

Your Only Option,

Mark Sebastian