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

Hey Traders,

On Wednesday, we saw the S&P 500 (Ticker: SPX) try to tank …

It then rallied all the way to green on the day …

Only to end the day down 17 points and to close right at 3800.

The VIX closed at 26.42, down on the day.

We are beginning to see bank earnings, and then earnings season begins in earnest.

This might be the only shot we have to look at at how the economy is going to look going forward …

If the banks say “things are not that bad,” we could pop.

But if they don’t say that (and they probably will not) …

We could begin our next leg down.

Right now the VIX is in a contango, with futures trading over spot VIX:

But it is really tight, meaning the VIX and the July future are really close to each other.

The VIX of VIX, VVIX, which had been dying for the last few weeks, is starting to act like it might perk up:

The Option Pit VIX Traffic Light was until now because the VIX never fell low enough, and futures were always on top of the cash index, either up or down.

But the VVIX in the 80s would normally say “go short vol.”

VIX might threaten a 20 if bank earnings are good … but if guidance is bad, we could see a serious pop.

Paper continues to brace for a pop in VIX based on option flow.

Traders on Wednesday bought calls in July, August, all the way out to March.

There is seriously only one trade right now in VIX.

The market right now believes there is no way the VIX can get to 20. It can.

At the same time the VIX is primed for a move back to 35.

The only trade right now is the VIX in July options:

The 24-strike puts are $0.20, the 30-strike calls are $0.60 …

I would buy both.

Your Only Option,

Mark Sebastian