The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.

The SPX dropped .73 points on Wednesday, a far cry from its lows of down more 60 points.

It had a wild day!

The index broke 3,950 for a hot minute and rallied over 60 points even briefly getting up on the day.

This is another sign that vol might drop.

VIX closed at 19.08 down.12; we could see it fall further.

I continue to contend we will see a new low, but VIX will likely not break 40 (maybe not even 30).

Near term, though, the vol outlook is down, and a trader put on a trade I really like:

A trader put on a 1-by-3 long the Feb. 23 puts and short 3x of the 20 puts, collecting .06.

This is a trade that plans on VIX not dropping below 18.

So how do you play this?

I think this trader is going to delta hedge this thing and make money as VIX slowly relaxes this week.

I would be a buyer of the VIX Feb. 19 puts.

They are WAY too cheap – and screaming “BUY!”

Your Only Option,

Mark Sebastian