The Option Pit VIX Traffic Light Is Green: Volatility is likely to stay high.

My VIX light is green and got greener on Tuesday…

This despite the S&P 500 only being down 7.75 points.

Why?

VIX correlation.

Relative to the S&P 500, the VIX is outperforming for the first time in what seems like two years:

Over the last two days, while the S&P 500 has fallen 45 points, the VIX is up substantially.

Heck, even on a day where the S&P 500 dropped .2%, the VIX rallied.

Then there is the curve.

On Tuesday the VIX actually got more backward:

VVIX? Up:

VVIX, the vol of VIX, is now at a three-month high and has completely broken out as traders race to buy VIX calls.

So what is going on?

Well, we are in fact due for a short squeeze, and we could get a face ripper in the next couple of days.

BUT!

The market appears to be bracing itself.

When you add up the flow I pointed out yesterday,  and the behavior today …

Things do not look good.

I think we are likely to be up on the open today

And from there likely another day like Tuesday…

But at some point,  likely soon, and likely bond related – there is a shoe that is going to drop.

I really like the November 35-55-70 call broken wing fly, I would buy a few puts to hedge.

Questions? Shoot me an email or comment below!

Your Only Option,

Mark Sebastian