The Option Pit VIX Traffic Light Is Green: Volatility Is Likely To Stay Elevated.

Hey Traders,

So far today, markets are up, and VIX is down.

We are in the middle of a bear market rally.

But that begs the question …

Where do we go from here?

Is today’s rally a sign that things are turning around?

Or are we not out of the woods yet?

Here is what I am seeing …

The VIX futures curve has been backward for going on seven days now:

Extended backwardation is not a bullish signal …

Even though markets are dropping, traders are still worrying more about near-term vol than longer-term vol.

So yes, we are seeing a bear market rally, and I think we could continue seeing this run into early next week.

But looking a bit further out, markets are going to be facing an uphill battle.

Consider what we are looking at …

Yes, there is the Russia/Ukraine conflict …

And looking elsewhere, in the third week of March alone we will have VIX expiration on a Tuesday, the much-awaited Federal Reserve meeting on Wednesday (with a rate-hike being anticipated), and a quadruple witching on that Friday!

So while we could definitely see the VIX run back to 23 over the next couple of days …

We will probably see it heading back to 30 shortly after.

And looking at VIX pits, I am not alone in this train of thought.

The market sees the VIX staying so high that there is not even a bid for the March 19 puts!

That essentially is placing zero odds on us getting below 20 between now and March expiration in three weeks.

So enjoy the breather while it lasts …

And I think we will be lining up for more action in the not-too-distant future.

Here’s a video of how I plan to trade this volatile environment.

Your Only Option,

Mark Sebastian