Because VIX is not an instrument one could easily trade, we need to analyze VIX futures and related instruments. VIX July futures is at 21.6. Considering that VIX futures usually trades at a premium over VIX, it seems now fairly valued to slightly "undervalued with one month to go before its expiration. Furthermore, VIX August futures is at 23.6, which means that VIX futures contango is steep. This steep contango if it continues would continue to put considerable pressure on VIX futures related instruments such as (VXX), which carries daily rolling positions of first two front month VIX futures. The reason is that starting from tomorrow, VXX would be selling some of cheaper VIX July futures to buy more expensive VIX August futures. Because of the steep contango, VXX may not rise even if VIX does.

Some form of action by central banks to support the financial markets seems to be fully reflected now in the markets, and if the US equity market remains stable than prices of VIX futures related instruments like VXX could continue to fall, especially when considering the steep contango. Last week VIX was considerably overvalued and VIX futures even more so ahead of the Greek elections. I suggested shorting volatility in my article "What Happens To VIX After Greek Elections?". Now, with VIX and VIX futures related instruments having plunged, the risk/reward profile appears no longer to be in favor of staying short VIX futures related instruments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

- Ahead of the Greek Vote this weekend, market volatility as measured by VIX is likely to rise or remain elevated. Usually ahead of possible market moving events, implied volatility rises due to investors buying options to position themselves for a big move after the outcome. Historically, however, it has been profitable to sell volatility into such Events.

- Last week, VIX declined from extremely overvalued state as measured by my FVE Indicator back down to fair value. With the rise in VIX this week, VIX is once again moving into overvalued territory.

- If we look at history, VIX rarely stays above the 30 level, even during market corrections. In fact, right before Lehman was allowed to fail, VIX was at 20 level despite a market correction that had been ongoing for 10 months--granted VIX was highly undervalued at that moment in time in August 2008. The second chart shows that FVE was indicating "fair value" of VIX to be 25 level in August 2008.

- What is interesting about the situation now is that FVE is indicating VIX to be overvalued as seen in the graphs above. In each of the three instances of extreme VIX spikes, FVE was indicating that VIX was undervalued or at least properly valued prior to VIX soaring past the 30 level. Each of these instances were also accompanied by a market shock--events that the market was not expecting. Lehman failure in 2008, Flash Crash in May 2010, and the second bailout of Greece in August 2011 and its implications for effects of contagion to larger European economies.

- So the answer to the question "What happens to VIX after Greek Vote?" really depends not so much on the outcome, but what is already being discounted in the equity market. Would Greece voting to leave the Euro zone really be a negative for the markets? Were not the markets really concerned about contagion to Spain and Italy? Has not Spain already succumbed to brutal market pressure and raised an unofficial white flag? Are not forces already in the midst of trying to attack Italy?

- The first condition that puzzles me is why the S&P500 Index remains above its 200-day moving average despite all the negative developments ongoing in global markets and the global economy. The second puzzling condition is why my FVE indicator has been consistently below VIX for the past month indicating that VIX is overvalued (after it had been above VIX the prior two months indicating that VIX was undervalued). The logical conclusion to this is that (barring any unexpected shocks like any other Euro members choosing to leave besides Greece) even if the US market correction continues, sudden plunges in the S&P500 Index is not likely and thus sudden spikes in VIX is also not likely.

- Perhaps a good trading strategy would be to buy put spreads or sell call spreads on VXX or July VIX options (since July VIX futures are trading at a premium to the VIX) ahead of the weekend. Always control your risks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

2) According to my Fair Volatility Estimate Model, VIX's fair value is 16.2 and April VIX Futures' fair price is 18.0. (see graph)

3) Upside skew of VXX also steepend considerably today. The April 16/19 call spread could have been bought for 0.60. That's 3 to 1 should VIX rise to 19, which is not a stretch should the market have even a minor correction.

I believe SPY & VXX priced for perfection.

- SPY has rebounded sharply the past 2 weeks. I'm inclined to think that this was a bounce from short-term oversold levels, and not the same continuation of a stampeding bull-market that we have seen since Aug 2010.

- If I'm right, now is the right time to put on a short-term bearish bet, for example, buying April 133/130 1x2 put spread for under 0.30.

- I do not like to buy VXX (it is better to find opportunitites to sell VXX) but for a short-term trade (few days), I'd look for good entry points to buy VXX intraday, especially under $29.

- Many of my indicators are pointing to higher probability of a SPY price correction. This time, however, I would not go against the bull market until SPY closes below bullish trendlines. Short-term Linear Regression Slope has gone negative. I will be watching Volatility Signal to see if it goes negative soon.

- Fair Volatility Estimate is 16.6 as of 2/28 in early trade. SPY mean implied volatility is 15.3%, so SPY options has gone from overvalued to undervalued in a matter of few days. Conditions seem right to look to buy options, but there needs to be a trigger.

-VXX is the symbol for iPath S&P 500 VIX Short Term Futures ETN and is an instrument to trade S&P500 volatility (only for very short-term). I'll study if there are any opportunity to use my Fair Volatility Estimate indicator to trade VXX profitably, although the contango (prices on 2nd month expiration futures trade higher than front month expiration futures) built in to VIX futures makes this instrument difficult to compare with my FVE indicator.  Since I'm looking to buy options, buy volatility, VXX might be an instrument to buy for the short-term, especially since VXX is down considerably this morning 2/28.