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

Hey Traders,

The S&P 500 (Ticker: SPX) closed down yet again on Monday.

Heading into VIX expiration, there are a lot of questions that need to be answered.

1. What is the VIX going to look like post-settlement on Tuesday?

To start, we can expect VIX to be slightly less volatile than in the last week.

Because April has SO much time to expiration … 35 days to be exact (about as long as expiration can be) I am expecting the VIX to move less.

Why? Because it doesn’t have a short-dated future pushing the index around. Yes, VIX usually leads the futures up and down BUT …

When we get toward expiration, sometimes the tail can wag the dog. This was certainly the case toward the end of March.

2. What is settlement going to look like?

Overnight, futures were up slightly and oil is down, but had things gotten hairy leading into the open, we could have seen VIX get a really big pop, or if we had a strong rally, it could tank.

There was a TON of open interest in March options:

Notice both up and down from the close, both call and put options have a lot of open interest.

A big move could really move things around and cause some weird trading in SPX itself.

3. With March off the table, can things calm down?

Slightly. As stated above, VIX is going to be less volatile. BUT we still have FOMC and Quadruple Witching coming up this week. Those will produce some fireworks.

4. What is the best way to play VIX this month?

This is something I am going to share in detail with Volatility Edge members, but I will say this … I would still lean long. There was HUGE VIX bull volume on Monday:

We have a huge delta neutral bullish risk reversal in June, bull call buying in July, and bull call buying and call spreads in April …

NO ONE is looking for things to calm down based on what we saw in VIX options.

Your Only Option,

Mark Sebastian