Yo Pit Crazies,

 

A feature of the market in 2022 is the ability of stocks to rip much faster than volatility can drop.

 

Upside volatility is usually exclusively the realm of government activity in the market.

 

The big question is, will this continue?

 

I have the answer for you inside.

 

Look at the Short-Term SIGMA in the SPX 

 

S&P 500 Sigma is the average volatility index for a term.

 

Livevol Pro, my options analytics tool of choice, uses three out-of-the-money calls and puts and the at-the-money strike to generate the Sigma Index.

 

Right now those numbers have crawled below 16%,  so the traders are gaining confidence that the sharp rallies will abate.

 

16% volatility is just Zone 2 (out of four zones) in the Option Pit Vol indicator, so things have calmed down to the lower point of 2022 so far. 

 

(Note, we measure four VIX zones: Zone 1: 9-12, Zone 2: 13-17 VIX, Zone 3: 18-23 VIX, Zone 4: 24-plus VIX.)

 

When short-term Sigmas dive this deep, I don’t expect a lot of movement the following week.

 

 

And they should, since 4300 is roughly the level SPX was before the Fed hit the gas pedal.

 

Historically this should be a time for SPX to go back to a more average realized volatility 12%-14% range.

 

This is a market condition and this is what we will cover in OP Mentoring this week.

 

I expect a small pullback but nothing crazy Monday-Wednesday.

 

Lower VIX and Lower SPX is a trade.

 

The Rundown

Big Money Flow

Licia has been helping Mark and I out in Big Money Flow lately and well…

 

We closed

• Chargepoint Inc (Ticker: CHPT) calls for a 105% gain
• Nikola Inc (Ticker: NKLA) puts for a 13% gain
• Peabody Coal Inc. (Ticker: BTU) calls for a 72% gain this week.

 

Power Income Trader

 

Bill is back to his usual tricks with Silver Trust (Ticker: SLV) call spreads for a 4% gain and CurrencyShares Euro ETF (Ticker: FXE) puts for 43% gain.  

 

To Your Trading Success,

AG