The Market Is Back, The VIX Is Not

The Option Pit VIX Light Is Yellow: Volatility Is Going To Move.

Hey Traders,

The market is now about even with where it ended on Thursday, July 15th.

But that does not mean that all is well.

There’s a reason the Option Pit VIX Traffic Light is still yellow.

Here is what that reason is, and what to do …

Less than one week ago, the S&P 500 (Ticker: SPX) was about where it stands now.

However in that time, the SPX has seen some serious movement.

This might be the reason that despite the S&P 500 recovering, the VIX has not.

Take a look at the change in the VIX futures curve:

The VIX itself is higher by about a point.

But more importantly, the VIX futures curve has totally shifted higher.

Until the futures curve falls back even with its old levels, it’s hard to argue that a move back to a red light makes sense.

Now, that said, this doesn’t mean I don’t want to fade volatility … I do … 

And I have been playing it this whole time (you can see some of those trades here.)

I just can’t go in full force until things fully normalize.

In the meantime, I like August strangles.  

Take a look at current option prices:

I can buy the August 18-strike puts and buy the August 20-25-strike call spread as a package for about $2.

I can make money trading off of that spread.

Your Only Option,

Mark Sebastian

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