The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move Wildly

Hey Traders,

The VIX fell below 20 for the 1st time since August.

With the S&P 500 only down 3 points after the HUGE runup on Wednesday,  and staying above 200 DMA,  this makes some sense.

They say history doesn’t repeat itself … but it echoes …

Take a look at the June-Aug VIX dump and the way we moved throughout November:

For this to not be a repeat, we would need the VIX to not chop around,  but to continue to fall,  toward 15 preferably …

It is notable and probably that the VIX curve did widen and is trading almost 2 points above the cash index in December,  January is still SKY high.

But what if this is not a bear market rally?  What if vol is truly done being in the 20s for a while?

The play would be in January where the 23 puts,  which are 3.14 in the money relative to VIX cash are only about 1.55,  that would pay more than 100% if the VIX stays here

Heck,  the 22-19 put spread cost about .90,  that also returns over 100% if VIX falls and is CHEAP.

Just a couple of ideas for the bulls ….

Your Only Option,

Mark Sebastian