The Option Pit VIX Traffic Light Is Green: Volatility Is Likely To Stay Elevated.
Hey Traders,
The S&P 500 rallied almost 2% on Wednesday.
VIX dropped 2.58 points …
But the Option Pit VIX Traffic Light is not changing …
What we saw yesterday is actually a touch scary.
The VIX has now been in backwardation for nine days in a row:
While VIX came down by 2.58 points on Wednesday, and the S&P 500 (Ticker: SPX) rallied 1.86% … a pretty strong move in a vacuum.
But …
You cannot view Wednesday’s action in a vacuum …
You need to look at the trend of the VIX and SPX:
The top is SPX and the bottom is VIX.
Even as the S&P 500 has stopped going down over the last week … VIX is going up.
The rally on Wednesday that got the S&P up from last week has not produced a lower VIX …
It’s actually continuing its trend higher!
What we saw Wednesday was a bear market rally and VIX not buying into it.
So how am I trading this?
I think bull call flies are going to pay out over the next week.
I would hedge them with some cheap puts or put spreads.
Your Only Option,
Mark Sebastian