The Option Pit VIX Traffic Light Is Green:  Volatility is likely to go up or stay high

Hey Traders,

Wednesday is Fed Day.

What has the effect of the FOMC been on the market?

The answer is a mixed bag over the last few years…

But over the last few months, while we have been in a bear market, the answer is actually a bit stunning …

Here is what might happen in the next week,  and then in the next few months until the next meeting in June …

We are in a bear market.

Bear markets are the OPPOSITE of what you might expect.

In a normal market, the S&P 500 (Ticker: SPX) tends to grind higher with a few blips of selling.

When that happens, the VIX spikes.

In a bear market, the opposite is true. The rallies are violent, and the sell-offs are grinding.

What has been a catalyst of late on VIX drops?

The FOMC.

Check out what happened to the VIX since June 30 of last year on Fed Day, and notice the VIX moves in 2022:

In 2022, Fed Day has led to VIOLENT sell offs in VIX …

These were then followed by A LOT more pain.

Funds are using these rallies to sell stocks.

So what might happen?

If it’s worse than we expect, VIX is going to 40.

If the Fed can talk nicely, we could see a violent VIX sell-off that then leads to another sell off.

The answer?

Trade the VIX.

I still love call spreads with long puts.

Your Only Option,

Mark Sebastian