In the past week, the SPX is actually still up a couple points, even with today’s massive reversal. However, despite a market that is unchanged since last Wednesday, the VIX has moved higher, as option buyers get more and more aggressive in both directions.
Here is last week’s snapshot:
Compare that to today’s snapshot:
So VIX spot and every single VIX futures contract is higher on the week. I mentioned last week that for those looking for protection or interested in a short-biased trade, long VIX positions were more favorable than long SPY puts, mainly for this reason. If the market sells off, then the VIX is going to move higher, but it also is likely to hold its value much better if the market continues higher, since emotions become even more heated the longer this rally continues without a selloff.
I think we’re finally close to an initial selloff in the market, but I would still prefer long VIX positions because the risk/reward to me is still more favorable. Similar upside with less of the downside risk if I’m wrong.