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

There is an old saying … the trend is your friend.

This is because the S&P 500 tends to correlate to itself …

When it was up one day, generally speaking it tends to be up again the next …

When it is down … the next day tends to be down.

However, that concept is completely out the window right now.

This is where VIX backwardation comes into play.

When the VIX is backward … like it is right now:

The plan of trading a trend tends not to work.

At this point traders need to shift strategy … and begin to assume that the trend is not their friend.

That means if the market is up one day … it can make sense to play the fade …

The same holds true for Volatility … On Monday the market is up … that can be a great time to load up on VIX calls … especially with VVIX a little softer…

Then when invariably the market takes a dive, traders can unload calls very quickly.

Now … with that in mind … do pay attention to the LONGER term trend in VIX …

Since bottoming in August, the VIX long term trend is UP.

Higher lows and Higher highs.

Until the VIX hits a new low … assume the week over week trend for the S&P 500 is going to be down.

For now, I like November call spreads and I like being short October vol for the next day.

Your Only Option,

Mark Sebastian