The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up or stay high.
Hey Traders,
2022 has been a wild ride to say the least.
And yet the VIX is … soft?
What gives?
We are approaching a critical level that could be make or break for market vol …
What is the “line in the sand” to watch?
Let’s take a look.
So far in 2022, we have seen the S&P 500 (Ticker: SPX) span a range of nearly 20% …
Check out the early year high and current low.
That is a range of 4,804 on January 4 to a low of 3,858 on Thursday.
We are nearing a line of potential support … and I think we will see a fight here.
Will we break … or bounce?
If we see the 3,800 level break, prepare for the VIX to blow higher.
If potential support doesn’t hold, then it is time to strap in for an even wilder ride … yes, it is possible.
Especially because – as I mentioned – the VIX is really incredibly soft right now, all things considered …
The market is notching a string of year-to-date lows, but the VIX is not notching year-to-date highs.
What’s more, as we have talked about, the VIX of VIX, VVIX, also can not seem to get off the mat.
We need a rally, or we need a break …
One other interesting thing to be watching is the U.S. Dollar … which is showing incredible strength right now, as fears of slowing global growth push people towards the “safe haven” currency.
The dollar index is at 20-year highs …
Ahead of May expiration one week from today, I like buying puts to take advantage of the dollar coming down from these multi-decade highs, and potential delta drift as we near expiration.
And remember, if the S&P 500 does start to fall again … keep a close eye on 3,800.
If that breaks, there is a very good chance it will break the market …
And catapult the VIX higher.
Your Only Option,
Mark Sebastian