VIX UPDATE – I just spoke with my core group of new Vol Edge members. And they are shocked at the amount of traction and success we are having trading the VIX RIGHT NOW! If you want to join in on the next VIX trade. Click here.
I want to take a few minutes to describe how our traffic light works. At Option Pit we use a Red Light, meaning sell, a Green Light meaning buy, and a Yellow light…which I will explain momentarily.
In the world of volatility, I want to remind you that things are upside down. In times where the market is tanking we want to BUY volatility.
Thus a Green light on VIX happens when markets are selling off: see Feb 2020:
Prior to that, up until the middle of February the traffic light was RED, meaning sell. VIX spent most of its time in Red.
It is red most of the time because of contango.
Now, let’s talk yellow. Yellow on our traffic light does NOT mean ‘caution.’ It means ‘we do not know.’ We might have our suspicions, but they are NOT based on quantitative measures.
Think about it this way, today the VIX closed about 38. The May VIX future is about 33.5.
This time next week, I think they will be about the same or lower.
However, I have extremely low confidence.
The VIX could just as easily be 45 if the market turns around. VIX is dropping because the market is going up, not because volatility is necessarily ‘tanking.’
We moved over 3% yesterday, that is a 45 vol, above the current VIX. The VIX curve is backward, meaning we are afraid of RIGHT NOW, more than the long term future.
Neither of those lend one to ANY confidence predicting the future. Especially VIX futures.
Thus a yellow light does not mean the market CAN’T go up, or the VIX down. It means the confidence of our predictive outcome is low.
Thus…
The Option Pit VIX Traffic Light is: YELLOW
Your Only Option,
Mark
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