Hey Traders,

While the headline on Wall Street is Game Stop, at Option Pit we know that the VIX is what really tells the story for the markets.

When the VIX is saying “look out,” those in the know heed the warning.

This is why Tuesday’s session was so important.

The VIX Light closed Monday’s session on the verge of flipping to yellow.

A Yellow VIX Light means we don’t know the exact direction of the VIX, but we lean higher, and the VIX is going to move.

So how did it play out?

The VIX Light didn’t move … it’s still RED.

A couple of things happened:

Most importantly, VIX actually correlated with the S&P 500 on a DOWN day.

This means that on Tuesday the SPX was down and the VIX was down.

Here is a two-day chart of SPX vs VIX.

While the VIX is still marginally higher after two days, the drop was enough to turn off the VIX Traffic Light’s blinking yellow Correlation indicator.

(The VIX Light is made of four components: VIX Curve Formation, VIX Correlation, VIX Volatility and VIX Option Implied Volatility.)

Now What?

This allowed me to be much more confident about the long positions I’m carrying.

From a macro trade, I like being long the market and long a VXX straddle as a pair.

There is still some risk that the market could drop, the ‘yellow light stopped blinking’  but is not that far off from doing it again.

I win big if SPX rallies, and I am hedged if VXX pops.

With the VIX Light Red, I am able to pay more attention to the “micro over macro.”

Instead of worrying about a potential melt down in the S&P 500, I can concentrate on the micro stories like what is happening in GME, AMC and other names that are heavily shorted.

Speaking of which, I am hosting an event tonight covering exactly WHAT is going on in these names — and how you can profit — TONIGHT.

You can register here.

The VIX Light is Red, meaning the VIX is likely to fall.

Your Only Option,

Mark Sebastian