The Option Pit VIX Traffic Light Is Red, and Volatility Is Likely to Fall.

Hey Traders,

The VIX hit a peak of about 21.5 on Tuesday …

But my positioning didn’t change.

If anything, I went further short volatility.

Why?

The VIX curve.

As the market (notably the Russell 2000) fell, the VIX curve stayed stable — and actually became progressively weaker.

Take a look at the move VIX futures made between March 24-31 …

The top line is the VIX futures curve on 24th. The bottom line is the VIX futures on the 31st.

The VIX futures had a VERY bad week.

The fact is that as the market fell, VIX stayed stable and VIX futures never really reacted.

This is the beauty of the Option Pit VIX Light … it very rarely gives bad signals.

Can it occasionally be a little slow and miss the beginning of a selloff or be a slightly late to get out of a hedge? 

Sure, occasionally.

But, in the end, it almost never gives a false signal …

And it NEVER gave me even a hint of a Yellow Light recently.

A yellow VIX light indicates that the market will move, but could go either direction. Red means the market is stable or falling. Green implies It’s time to be hedged up and ready for ugliness – and opportunity.

Now that we sold off and VIX didn’t react …

I think it sets up for the VIX index to drop to 17 or lower.

As I said yesterday, I’m a buyer of the VIX 19-17 put spread…

In Volatility Edge I put on a trade that set up a June butterfly.

The Option Pit VIX Traffic Light Is Red, and Volatility Is Likely to Fall.

Your Only Option,

Mark Sebastian