The Option Pit VIX Traffic Light Is Green: Volatility Can Go Up.

Hey Traders,

We had another wild day in the markets on Tuesday …

The S&P 500 (Ticker: SPX) went from down over 100 … to up on the day … only to close down 53.

While I think we might be getting to the end of the selling, it is far from a sure thing.

We are not out of the woods …

The Option Pit VIX Traffic Light briefly went red on Tuesday …

But it did not last.

In the end, the VIX closed over 30, and the VIX futures curve is still in a heavy backwardation:

In fact, despite the midday rally, VIX futures actually went up:

And not by a small amount!

This is a pretty strong argument that we are NOT out of the woods.

On the other hand, we have VVIX … the vol of vol:

The index seemingly is topping out …

So what is to make of this?

The VIX is going to move.

We are likely to have another strong day for VIX in the near future.

But at the same time, the panic selling might be over.

So how do YOU know when the selling is done?

Watch ARK Innovation ETF (Ticker: ARKK).

On Tuesday, ARKK implied volatility (IV) was only up a smidge:

This is despite it being down nearly 4%.

When that IV drops two days in a row …

It’s probably time to go long.

Your Only Option,

Mark Sebastian