The Option Pit VIX Traffic Light Is Green: Volatility Can Go Up.

Hey Traders,

The S&P 500 (Ticker: SPX) seems to be getting into gear to start the week, as the index prepares to close out its worst month since the March 2020 COVID crash.

In turn, the VIX seems to be letting off the gas, with the volatility index tapping under the 26-handle for the first time in more than a week …

What’s more, the Option Pit VIX Traffic Light may be getting ready to change to yellow …

First of all, take a look at the VIX futures curve …

While I would not call this curve a normal contango by any stretch of the imagination …

It has come quite a ways since the crazy backwardation we saw last week …

The February future has dropped considerably, although the March future is still rather firm …

If the current trend continues, I think we will see the VIX curve shift closer to a contango, and we will be able to switch the VIX Traffic Light to yellow.

I am also closely watching the VVIX – the VIX of VIX.

Like I have talked about several times before, VVIX has been steadily coming off for over a week now, falling from a midday high above 170 to currently trading below 130.

That is quite a drop, and shows me that demand for at-the-money hedges continues to fall …

Traders are no longer using juicy, at-the-money options to hedge, which tells me they are not as anxious about an imminent vol pop as they were earlier this month.

So we may be past the VIX peak … and looking for a move lower in the days ahead.

The Option Pit VIX Traffic Light is green … but perhaps not for much longer.

Your Only Option,

Mark Sebastian