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

The S&P 500 caught a huge rally at the end of the day on Monday.

This was on a call from JP Morgan that we could rally 10% in one day if the number comes in light.

I do not think we are going to rally 10%, but we could see the market rip.

How much of a move are traders looking for?

Check out the S&P 500 straddle for Tuesday:

That’s right … the S&P straddle is pricing in a $96 move – almost 3% by the end of the day.

And VIX – there is a reason it is 25. Remember, it is pricing in moves regardless of direction.

This is why the curve is so important, because while VIX ripped higher Monday, VIX futures remained calm.

Once the news hits on Tuesday and Wednesday,  expect the VIX to fall off,  whether the news is bad OR good.

The key is do not fight the momentum … buy puts or calls in the direction of the market on Tuesday morning.

At the same time, I am looking to buy VIX January puts, because I think the futures are going to drop hard.

Your Only Option,

Mark Sebastian