The Option Pit VIX Light Is Green: Volatility Is Going To Go Up.
It is not a pretty day for markets …
The S&P 500 (Ticker: SPX) is taking one on the chin …
And unsurprisingly, the VIX is reacting in turn … popping to a four-month high, and tacking on nearly 37%, as I write this.
Right now, the VIX is slated to see one of its biggest one-day pops in history …
I think we are not done here yet …
Here is what I am seeing, and how I am trading it.
You’ve Got It All Backwards
Today the S&P 500 (Ticker: SPX) opened down … way down.
And given the negative correlation between the SPX and the VIX, it is not surprising that we started the week with a significant VIX pop.
It looks like even the Quadruple Witching we saw last Friday wasn’t enough to take the pressure off the market, and take some of the wind out of the VIX’s sails.
The most significant Option Pit VIX Light indicator I am seeing is the VIX futures curve.
For quite a long time, we have been used to seeing VIX futures almost exclusively in a contango pattern …
That is, VIX futures are trading progressively higher above VIX spot.
Here is an example of the VIX futures curve from last week:
Now we are seeing something totally different … the VIX futures curve is now in backwardation.
This is when VIX futures are trading BELOW VIX spot:
Notice that October futures are trading higher than November futures, which are trading higher than December futures …
That is a bad thing.
That is showing me that investors are actually expecting MORE volatility in the near-term.
The VIX is currently in the “transition zone,” or Zone 3, and is teetering on Zone 4 — which represents true market panic.
The VIX curve in backwardation is telling me we could see the VIX spike further.
I am bracing for a further rise in the VIX.
In my Volatility Edge program I have already made two trades today …
The first was a VIX call spread, which I have already partially closed for a profit …
And the second was a call spread in iPath S&P 500 VIX Short-Term Futures ETN (Ticker: VXX), which tracks VIX futures.
Until midnight tonight, I am offering a one-month membership to my Volatility Edge program. Click here to find out more and join me.
I have not offered one-month memberships in this program before, but I am seeing plenty of changes to trade volatility in the near-term — and today’s green light is a perfect example.
Your Only Option,