The Only Way To Play This VIX

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

 

Hey Traders,

The VIX Traffic Light stayed persistently red … but has finally switched to yellow.

Tuesday was a classic example of why I like to wait to change the light …

The VIX closed about flat, after spiking in the morning …

VIX futures got crushed …

But even after closing flat-ish, the VIX is still over 19.

This is way out of whack with how much the S&P 500 (Ticker: SPX) is actually moving …

Check out realized volatility on the SPX:

The dark blue 60-day historical volatility (HV) is 11 …

Every other measure of realized volatility (10-day, 20-day, and 30-day) is under 8!

Yet VIX is 19?!

This cannot stand …

VIX needs to drop like a stone …

Or the SPX needs to explode …

So what’s it going to be?

Well, remember the FOMC is still pumping $100 billion a month into the market …

Earnings are over …

We are heading into Christmas, when the SPX typically rallies …

On Tuesday, every time algos tried to crush the market, it got bought, until it ended the day up.

I think we are due for a FACE RIPPING rally in the next couple of days.

It could be around Black Friday or could even happen today …

That said, we could still fall apart.

So what to do?

On Tuesday in Volatility Edge we bought VIX puts with a hedge …

I’ll tell you the hedge side of the trade:

We bought the VIX 24-32.5-strike call spread for $1.00. 

Against that, we bought puts.

This is literally the only way to play VIX right now because it could make a wild move.

Your Only Option,

Mark Sebastian

 

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