The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
The S&P 500 opened up almost 25 points, only to close just above the lows of the day…down 62.11 points.
The VIX, which saw January options roll off (settling at 19.09) went from down on the day to back above 20, closing at 20.34.
The move on Wednesday engulfed the last 3 trading days BLOWING through the 200 DMA and threatening the 50..
The VIX rally, while not giant, clearly points toward volatility starting to wake up.
VVIX, which (as we stated) was rallying before all this went down, also rallied:
It is now more than 13 points off the high…and STILL reasonably priced.
Looking at volatility, this move could have some follow through.
The 50 day is going to break, likely on Thursday.
Long term: this is going to present us with some amazing trading opportunities I’ll reveal tonight.
Short term: I think you want to be long volatility, I would be buying VIX call spreads.
Hedge it with a cheap put if you think I am wrong (which I usually am not).
Your Only Option,
Mark Sebastian