The Option Pit VIX Traffic Light Is Green: Volatility is likely to stay high.
The S&P 500 rallied 92.81 points in what was a powerful short squeeze on Monday.
The VIX dropped 1.52 points to 30.10. That’s big, considering weekend effect.
But the landscape has not changed for the market as a whole.
The VIX curve did fall and flatten … but we are still in backwardation:
This means traders anticipate volatility going up, not down.
To further the point check out the big trades in VIX on Monday:
“Look, mom, no puts!”
While volume was low on Monday for VIX. The activity was clearly bearish the S&P and bullish volatility.
If you are looking for a reason to be bullish you could look at bond volatility, which did drop:
But, there are bigger things afoot…
Take a look at option volatility in Credit Suisse Options:
Short squeezes happen, and rallies are super-strong in a bear market.
But nothing has changed.
WIth Monday’s drop, traders should buy VIX November volatility, as I have been prescribing the past few days.
You will thank me.
Questions? Shoot me an email or comment below!
Your Only Option,
Mark Sebastian