The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up.

Hey Traders,

The S&P 500 (Ticker: SPX) had a huge turnaround on Tuesday.

After being down as much as 75 points, the SPX closed the day up around six points!

VIX did rally … but mostly from the effect of the long weekend.

So now the VIX is sitting at 27.5 … no-man’s land.

Whether you think it is going to be moving higher or lower, we already know one thing:

Now is the time to buy VIX options.

VIX of VIX, VVIX, is still dirt cheap:

At 86, it is about as low as it can get with the VIX at 27.5.

So I like owning strangles and puts with call spreads.

However, the VIX’s next move is likely higher.

The Fed minutes are coming, and the SPX is running out of steam.

I don’t think we see a blow-the-top-off move, but a move back above 30 appears to be in the cards.

On Wednesday morning, a huge print went up where a customer rolled out of October and into March 2023 in a big 1-by-5 call ratio spread.

Traders continue to think we could have a big move, they just do not know when.

Near term, I would be a buyer of the VIX 30-37.5 call spread in July and would own ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) puts to hedge.

Your Only Option,

Mark Sebastian