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

The S&P 500 sold off 24 points on Wednesday, but that doesn’t tell the whole story.

The index had over an 80 point range, going from up 30, to down over 50, to closing down 24 points.

That type of movement would chop up a SPX trader trying to play directionally.

But the VIX was a different story.

As I stated yesterday, no matter what the FOMC did, I wanted to be short VIX in January on Wednesday.

Well … take a look at what happened:

Ahead of the Fed, the VIX Jan future fell.

When the news hit and the S&P 500 started falling … Jan POPPED.

Then, even as the S&P 500 was still down over 45 points, something strange happened …

VIX futures started to tank.

They got a brief reprieve higher, before the future completely collapsed.

If you bought puts or shorted futures at the top … you were happy.

Now look at the curve:

Yes, with less than a week to go, the Dec future is trading at a discount.

But both December and January have completely collapsed from where they were Monday night:

With VIX still over the December future, there is likely to be more pressure on VIX and VIX futures.

A continued collapse of vol is likely today.

Your Only Option,

Mark Sebastian