VIX Smokeshow

Mark Sebastian

The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.

The SPX had a strong rally on Tuesday following up on Monday’s move closing above 4000 to 4002.87.

The VIX took it on the chin, falling to 21.38.

The VIX curve is now fully in backwardation:

What is interesting is that the spread between the cash and April future is actually pretty normal.

If the VIX selling was getting stretched, we would see the spread between the curve and the future widen.

For instance, when we have found VIX bottoms in the past the spread between future and cash has been closer to $3 with this much time left.

Unlike Monday, we saw heavy put buying on Tuesday, which was yet another active day for VIX options.

This is another sign that VIX could be heading lower.

I would be buying puts on VXX or UVIX to Augment a short SPX short VIX portfolio.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian

VIX Edge

Mark Sebastian

Mark Sebastian is a former member of both the Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX), where he spent years mastering the art of options trading in the most competitive environment imaginable. As Chief Investment Officer at the hedge fund Karman Line Capital, Mark manages sophisticated options strategies for institutional clients. He is the author of two highly regarded books on options trading: ‘The Option Traders Hedge Fund’ and ‘Trading Options for Edge.’ Mark is a frequent guest on major financial networks including CNBC, Fox Business News, Bloomberg, and First Business News, where he provides expert commentary on market volatility and options strategies.

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