These Indicators Flipped The VIX Switch

The Option Pit VIX Light Is Yellow: Volatility Will Move.

Hey Traders,

Well, it happened …

With everything that’s going on in the market today …

The Option Pit VIX Traffic Light has moved from red to yellow.

What does this mean?

And, maybe even more importantly, how am I going to make money trading?

Like I said, the Option Pit VIX Traffic Light switched from red to yellow on Thursday …

But just barely.

Here’s what’s going on. The minor indicators I watch tripped the switch, notably the VVIX — the VIX of the VIX.

The VVIX popped over 120 on Thursday morning, before backing off a touch to 117.

In addition we are seeing realized volatility in the VIX starting to pick up. After bottoming out at 50% realized volatility over 10 days, the VIX movement is clearly picking up over the last couple of days:

We will see the 10-day realized volatility pop over the 20-day on Friday or Monday.

Finally, the VIX futures curve itself has flattened and, while still in a contango (futures prices higher than spot prices), things have tightened up enough for me to make an early call on the VIX light.

So what does this all mean? Is the market going to hell and a handbasket?

No, but volatility is going to move.

This means we could see VIX fall back to 15, or make a run to 25 or higher.

This means that straddles are likely to work.  

I like straddles in iShares Russell 2000 ETF (Ticker: IWM) and SPDR S&P 500 ETF (Ticker: SPY).

I also like call spreads in VIX vs VIX puts.

We did a trade in Volatility Edge buying the VIX 18-strike puts, and hedging it with a call spread for July.

I also am eyeing doing something similar with ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY).

But … if you want me to let you know when I make my move, you must be a member.

Your Only Option,

Mark Sebastian


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