The VIX is testing 14 support once again. At this point, the logical strategy is a bullish one.  That logic holds true unless it break 14 support.

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Based on the current price of 23.46, the VIX has gained 71.74% since the March 16th 13.66 low.  Furthermore, it has gained 48.95% since the more recent April 26th 15.75 low.

This is quite a move and intuition would lean towards shorting volatility here.  But is that the right play?

According the Inverse Head & Shoulders pattern, it’s not.  The patten indicates a move to 30 (grey rectangle), which indicates 27.88% of upside from the current level. 

Are technical patterns dependable in the VIX? Not always, but they should never be ignored.  S&P Futures completed a head & shoulders pattern measured move with yesterday’s dip to 1300, which detracts from the validity of this VIX pattern a bit.

Bottom Line: We are moderately bullish in equities here, and will be aggressively bullish if the VIX reaches 30-33 range.

$VIX pushed below 20 today. The volatility environment is back at levels where we look at buying premium more so than selling it.  Vertical debit spreads will be more the norm for us versus vertical credit spreads.  We may even consider long calls & puts and long straddles & strangles at these levels.

For the time being, gone are the days of super wide Iron Condors, super wide Short Strangles, and well cushioned credit spreads. 

Bottom Line: A shift this big in the volatility environment should always result in a shift of strategic approach via Options.

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Gone are the days of extra wide Short Strangles & Iron Condors, Verticals with extra cushion (for the most part).  The VIX is no longer in 30-48 range it spent the latter part of 2011 in, and implied volatility levels are condensing as a result. 

The VIX is currently at 21.14, a level that’s 55% lower than the October 4, 2011 high of 46.88.  As the volatility environment shifts from high to medium, so should you strategic approach with Options.  The key to staying successful with Options trading is being able to adapt to different market environments.  At these levels in the VIX, we are much more prone to do a mix of net debit and net credit spreads, whereas we have been almost exclusively net credit since August 2011.

With that in mind, we are prepared to shift even more so towards net debit spreads if the VIX dips & holds below 20.  So far 20 has acted as a level of support for the VIX, but having a game plan in the event of a break is never a bad idea.

$VIX $VXX: We just provided our thoughts on S&P eminis, but let’s take a moment to review the CBOE Volatility Index (VIX).  The VIX measure the fear/uncertainty in the market. Similar to S&P Futures, the VIX has been trading in a range since early August.  Range support is 30, range resistance is 44. Today’s 5%+ upside move in the VIX took it above 44 range resistance, creating a potential bull flag confirmation.  If this does turn out to be a bull flag, our target for the VIX is the 58-60 level…scary.  This would obviously coincide with the 850 target in S&P eminis, and would make for some extremely attractive buy side opportunities.  For now we are sitting still and watching the price action.  If the VIX manages to push through recent resistance at 48 (yellow line), we are going to position very bearish!