The Option Pit VIX Traffic Light Is Green: Volatility is likely to go up.

Hey Traders,

The S&P 500 (Ticker: SPX) ended Thursday up 35 points, nearly touching 3,800.

But the VIX actually closed up on the day!

This is usually not a good sign.

Considering the S&P 500 rallied, that means vol was up more significantly than just .10 points.

VIX should – because of its structure – fall significantly when the S&P rallies about 1%.

For VIX to be up, means there were vol buyers out there.

We tend to see this when the market is topping out.

This rally has been swift and small, and feels a bit like a bag holders rally …

The type of rally only people who are about to lose another 10-20% buy.

Now, I am not saying we are selling off…

But watch tomorrow if we have another day of “up SPX” and “up VIX,” or a flattish day with vol higher …

Look out.

I think the market is going to 3300 over the next few months, maybe lower …

VIX  will touch 40 again before this sell-off ends.

I would buy the 30-40-50 call fly in July against the cheap puts that I pointed out yesterday (which I still like).

Your Only Option,

Mark Sebastian