Seeking Out a Voice of Reason

The VIX Light is Yellow, Volatility will move.

Hey Traders,

Before we dive into it today, I wanted to let you know that I’m hosting a special event tomorrow night, where I’ll reveal my top three post-pandemic stock picks. I’ve been keeping an eye out for these kinds of trades for several months, and I think these three stocks are getting ready to move — and not in a good way.

Click here to register — it’s free!

Now, back to our regularly scheduled VIX programming …

Monday morning, Andrew Giovinazzi, the brilliant trader and teacher who is our Director of Education here at Option Pit, asked me if the VIX light is still yellow…

At the time, the VIX was dropping like a stone.

VIX futures were in a steep contango (meaning the VIX was below May futures, May futures below June futures, and so on).

The VIX index was back to negatively correlating with the SPX …

VIX volatility and VVIX were both falling.

But in spite of all of this, I said, “No, it is still yellow …”

So, did I know the S&P 500 was going to drop 44 points over the course of Monday’s trading session?

No, but I did know this …

Every Morning Andrew Giovinazzi,  the Option Pit Director of Education, and I check in.


Because checking in with a great trader every day will make you a much better trader.

I consider Andrew to be one of the best traders I know (probably better than me!).

So, access to someone like that is invaluable to me (by the way, did you know my Pro members have access to him — and me — all day through our Pro Chat Slack room?).

Even the best of us will fall into the trap of believing our own views are infallible.

Talking to Andrew gives me that “Someone calling my bull” reality check … The kind every trader needs.

During our check in, he asked if the VIX light was still yellow, indicating the market could go either way, even though the VIX itself was spiralling lower at the time.

I responded “yes, but…”

If conditions stayed the way they were in the morning, it would go red.

You see, indicators should be a lot like my daily check in.

They are designed to keep me steady, not to whip around all day like the VIX index!

The VIX light only colors after the bell.

There is just too much intraday noise to allow it to flip to red and yellow and green continuously throughout the day …

It would stop being a “hedging indicator” and turn into a “day trade indicator” if that was the case!

I don’t want or need it to be a day trading indicator.

So,  even though the VIX was down and VIX futures in a steep contango, I did NOT change my traffic light …

And lo and behold, what happened?

The VIX made a wild move … Just like a yellow light VIX should:

Low to high the VIX moved almost 2.20 points, gaining 2.97 points total on the day …

And the VIX light stayed yellow, because I expect more wild moves in the coming days. Could be up, could be down…

But because the indicator doesn’t move on a whim, I’m not caught off guard by a wild move very often.

The lesson? 

If you don’t have a trader that is better than you to check in with … Get one.

And if you’re building an indicator, make sure it does what it is supposed to do, which is prepare you to trade.

Don’t forget — I’ll be going live tomorrow night with my top three post-pandemic stock picks. Click here to make sure you’re registered!

Your Only Option,

Mark Sebastian

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