We’re Getting Mixed Messages From The VIX

Hey Traders,

The Option Pit VIX Traffic Light remains red …

But we are getting some mixed signals from our sub-indicators.

That is not surprising …

Considering we are seeing the VIX up for the third day in a row today.

What am I seeing that could trigger a switch to yellow?

After hitting new post-pandemic lows below the 15 mark last week …

The VIX seems to be saying “nevermind, just kidding!” and has proceeded to move higher now for three days in a row.

The VIX Traffic Light is still red, but we are getting some mixed messages from our sub-indicators …

Let’s take a look.

First, even with the VIX rising, the VIX futures curve is still signalling “red.”

How?

Because as the VIX is rising, so are VIX futures, keeping the curve steadily in a contango (futures trading progressively higher than spot VIX).

Here is the VIX futures curve today (blue) and last Wednesday (purple) …

Of course, this is also causing VIX ETPs that are based on VIX futures to go up as well, so we are seeing iPath S&P 500 VIX Short-Term Futures ETN (Ticker: VXX) and ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) also go higher.

VIX volatility is also still red, because VIX realized vol has remained essentially flat over the last few days …

However …

The VIX of VIX, or VVIX, which looks at VIX options implied volatility, is now in yellow territory …

And finally, the VIX/S&P 500 (Ticker: SPX) correlation light is also yellow.

As the VIX has climbed, the SPX has also climbed. On the one down day, it did not fall much at all, and so far today, it is going higher …

This is the opposite of the negative SPX/VIX correlation we usually see.

And it could signal we have turbulence coming our way.

But for now, the Option Pit VIX Traffic Light remains red.

Your Only Option,

Mark Sebastian

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