Option Pit VIX Traffic Light Is Green: Volatility Could Go Up.

Hey Trader,

Well, “fake news” sent the market into a tizzy on Monday.

On a day where we thought the VIX might actually back off, headlines caused the VIX to blow higher.

As the dust settles, though, I see some ‘red shoots’ for the current crisis …

Here’s what I’m seeing.

Check out the move VIX made midday on Monday:

This was caused by a report that said a Russian attack could happen as soon as Wednesday, February 16.

That is clearly false information … 

After all, it isn’t like the Russians would tell Ukraine when they are planning to come in!

And now that the dust has settled, VIX is lower.

But … the big mover is VVIX, the VIX of VIX:

VVIX gapped lower, and is now trading back at its February 11 levels.

The next move is important. If the VVIX moves to 120, VIX is probably going to test the 20-handle again.

But if we get a move higher, all bets are off on how far it could go.

That said, I expect one more round of big fireworks in the coming months.

Our October ratio spread buyer has now increased their position to 30,000 by 150,000:

Remember, this is a hedge. The trader is not looking for a move to 75; they would be happy with a move to 45, and VVIX going to 180.

But the fact that a trader put on a trade this large tells me we remain in a trading range.

Heading into Wednesday expiration, the price action of VVIX tells me we could see a settle lower…

If I can buy the February 24-strike puts for $0.05, I will.

Your Only Option,

Mark Sebastian