The Option Pit VIX Light Is Yellow, and Volatility Will Move.
Hey There Traders,
The S&P 500 had a rough day on Wednesday.
The second in a row.
Over the course of two days, the SPX has given up 80 of the 90 points it made on Monday.
But what is volatility doing?
Remember, volatility is the best measure of fear.
When the VIX is bumping …
Traders are racing to hedge.
When it’s not …
The opposite is true.
What I See
Take a look at the charts below. S&P 500 is on top and VIX is on bottom:
What do you notice about the price action from Wednesday, relative to last week …
The answer is a complete lack of panic.
Could we be heading lower? At this point, it could be for a day or two.
But is the VIX acting like the world is about to end?
The answer is no.
So, while the selling today was certainly bad …
The VIX is kind of saying, “Meh.”
The “fear index” isn’t panicking or buying into the fact that there could be a huge downside move.
So, if you think we are going to tank, the good news is that hedging is still cheap …
But I am seeing a chart that says this is temporary and we are probably going to run higher soon.
My Move
I am a buyer of S&P 500 calls … hedged with a cheap VIX call or call spread like the VIX 30-490 call spread.
The Option Pit VIX Light Is Yellow, and Volatility Will Move.
Your Only Option,
Mark Sebastian