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

Hey Trader,

Roses are red, violets are blue …

But the VIX Light is green …

Thanks to Russia and inflation, too.

Well, the markets seem to be celebrating Valentine’s Day … 

Since they are all wearing red!

And the Option Pit VIX Traffic Light is now green, so we may be getting ready to see the VIX move even higher still …

Especially if tomorrow’s big data reveal comes in worse than expected!

Today’s big VIX pop can be partially attributed to the escalating conflict at the Ukraine border.

While many traders (myself included) thought that the stalemate would continue at least until the end of the winter Olympics … 

It seems that things could be taking a turn for the worse, even sooner than expected.

The threat of international conflict understandably shakes investor confidence, and in turn drives up the VIX.

But another piece of the puzzle will come out tomorrow …

When the Producer Price Index (PPI) numbers come out.

If this goes the way of the Consumer Price Index (CPI), and the data is worse than expected, markets will react …

And we could see the VIX take another trip higher.

With today’s VIX pop, we saw the VIX futures curve enter backwardation:

So spot VIX is above futures, and the front-month future is trading higher than the rest, indicating traders are most concerned about near-term volatility.

And in the VIX pits, we saw more of the October-dated backspreads that traded on Friday …

This trader is selling the October 35-strike calls, and buying the October 75-strike calls in what is most likely a hedge trade, so the trader is long in S&P 500 (Ticker: SPX) but is anticipating potential vol spike, or a spike in VIX implied volatility (IV).

Clearly, markets are on edge, and traders are nervous …

And the VIX Light is green, as we await answers …

Your Only Option,

Mark Sebastian