The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.

The SPX closed down 2.99 points on Monday to 3892.09.

But that does not tell the story.

At one point the index was up over 54 points and was breaking 3,950. Then,around mid-day,  the market cracked under its own weight.

VIX popped back toward 21.97, ending the day up .84 and VVIX rallied back to 77.27.

I would note the VVIX was actually adjusted for the weekend and DOWN on the day at certain points. VIX options were cheap all day.

The VIX Jan. 2018 21-23 strangle (a spread where you buy the 21 put and the 23 call at the same time) traded as low as $1.10. It closed the day at 1.23 – a more than 10% rally.

For a delta neutral spread that is a massive one-day move.

And It is likely to continue…

CPI comes out on Thursday morning.

This is THE biggest number that gets released each month.

With VVIX at 77.27 and VIX at only 21.97, calls, puts, straddles and strangles are going to be too good to resist…

Here is what VIX did in front of CPI in December …

While VIX went up, futures only went up marginally…

But VIX option vol rallied, too. Pretty aggressively, actually, moving from a low at the beginning of December below 81 to peaking at just under 93 the night before CPI

Knowing this, while I was on my Vol Edge Live buying strangles in January and February, do you think I was doing the right thing this morning? Comment below!

HEADS UP: The Pit Report newsletter is returning with a new format starting THIS WEEK … In honor of Georgia winning the national title (decisively!), we will be running a story around a company based in the Peach State. It will be out tomorrow – and multiple times each week. Make sure you’re on the list!

Your Only Option,

Mark Sebastian