The Volatility S&P 500 Index (CBOE: VIX) had an interesting morning session to start the holiday week, opening lower Monday and hitting support around $17.35 before starting a furious rally up to $19 over the next hour.

This rally temporarily sparked fears in traders, as all the major indices started tracking lower once the VIX made its ascent. You can see the dramatic changes in the price of the SPY ETF (NYSE: SPY) when it started selling off heavy when the VIX started its rip (image below).

Yet the VIX double topped at $19 before selling off since, down over 7% from the intraday highs.

The index was ultimately up 7.71% at $19.29 at the close. 

Why It Matters: The VIX is also known as the fear index, where it (anecdotally) measures the level of “fear” or risk from the market participants through volatility increasing (often a sign of risk increasing in the markets).

But what is “odd” about this quick rip up to $19 is the overall option activity is low on the VIX with approximately 179,000 options (image below).

Prior to Monday, there were approximately 3.42 million calls and 1.74 million puts for a total of 5.16 million options. Thus, today’s 179,000 options represent only 3% of the total options.

The fact the the VIX could rip so quickly up to $19 on low volume suggests part of the quickness of the move is due to lower liquidity this week due to the holidays.

Benzinga’s Take: If low liquidity like this can cause such quick moves, traders should be cautious this week and trade lighter positions than usual, as the moves might become “exaggerated” later into the week.

It also means traders should be keeping an eye on the VIX for any sudden moves upward that could lead to a broader market selloff.

Luckily the markets seem to have recovered (mostly), with the SPY ETF just above its cash market open price.

If the VIX starts ripping up again towards $19 and beyond, this could lead to another strong selloff, with traders buying protection until the Nov. 26 expiry.

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