Yo Pit Crazies,

This week’s CPI number was big. 40-year inflation big.

And digging into the number, a lot of the inflation was oil related and in industries that rely on oil, like agriculture, construction, etc.

The selloff started in the S&P 500 on Thursday afternoon and did not stop until the closing bell on Friday.

Now I think the market is setting up well for a trade since the VIX is high but market volatility is higher.

VIX and SPX Are Negatively Correlated 80% of the Time

When VIX is going up, SPX is usually going down. After watching VIX for the last 10 years, that certainly is the case.

I think the best trade routines come from practice. As in watching the screen – or in the old days – paying attention to what happened in the pit. What I learned was realized volatility (how much the underlying is moving) was king. 

The market is going to move and your trade has to pay based on that move. It is possible to make it complicated, but that is it.

Looking below, the trade I want to make is short SPX. Things look horrible. But the realized vol is such that as bad as the market looked Friday, it could bounce back on Monday. That is the nature of a market with high realized volatility.

VolMan looking at rising realized volatility as implied vol struggles to keep pace.

What I want here is a short vol, short SPX type of trade – I want to own puts in both indexes.

The reason being, right now implied volatility is still relatively cheap and the traders have not felt the need or had the demand to kick up the price.

SPX could break apart on Monday, too, or folks step back and access. If they do VIX is 24 again. Right where it was Thursday.

Want more?

https://options.clickfunnels.com/squeeze-page1654809218905

To Your Trading Success,

AG