Hey Traders,
After a long stint on red, the Option Pit VIX Traffic Light is now yellow …
The VIX is currently trading over 30 … that’s quite a move from the sub-20 we saw last week.
The Fed is shaking markets, and the VIX is responding in turn …
Besides the VIX moving rapidly higher, the VIX futures curve is now in backwardation:
Traders are nervous … and they are more nervous about the immediate future than farther out…
And the VIX curve in backwardation may be the biggest factor when deciding whether to flip the light to yellow (or green), or keep it red …
A contango … even with a high VIX … indicates traders are expecting vol to come off.
Backwardation means they are not so sure.
But as VIX and VIX futures are making moves … it is a different story in the VIX of VIX, VVIX.
VVIX is not making the kind of move I would expect … it is more subdued than I would think we would normally see …
VVIX indicates the appetite for volatility options, or how expensive it is to buy and sell VIX options right now.
If the VVIX is low or falling, we would generally move to a red light.
Right now, even with VIX higher, VVIX is not rising as much as I would expect.
Does that mean this VIX pop is temporary?
We will have to wait and see …
Your Only Option,
Mark Sebastian