Looking Ahead After Friday’s Dump

The Option Pit VIX Light Is Yellow, and Volatility Will Move.

Hey Traders,

Heading into Friday’s trading, we saw a really strong VIX rallying with the market.

That correlation between the S&P 500 (Ticker: SPX) and VIX had me worried heading into Friday’s session — and I thought there were real odds of a market dump.

We did not get that …

Instead, the VIX got absolutely THWACKED!!! (That’s a technical term.)

In the fallout, the S&P and VIX began negatively correlating again.

But correlation isn’t the whole key to a yellow light.

Because a yellow light does NOT mean the VIX is going to explode higher …

It means the index is going to move hard.

And move it did.

What’s more, the VIX futures got beaten even worse than the VIX itself!

Check out the move in the VIX futures between the Thursday and Friday closes. The May VIX future dropped $1.40, while June fell a full dollar.

This move crushed VXX on Friday:

VXX, which tracks  the S&P 500’s implied volatility, dropped $3.50 to end the week, one of the biggest percentage moves I have seen out of the product during a sub-20 VIX.

So what does all this mean?

Well, the Nasdaq-100 (Ticker: NDX) is clearly sick, but the S&P 500 seems to be picking up slack with the reopening of the economy.

The falling VXX, however, means the S&P could do little to nothing for a while. It also points toward a coming drop in the VIX.

And a likely red light tomorrow.

The Option Pit VIX Light Is Yellow (for Now), and Volatility Will Move.

Your Only Option

Mark Sebastian

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