The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
The S&P 500 ran up 46 points on Monday.
Could that be a bit of a potential front-run ahead of CPI today?
Maybe … but VIX only dropped about .19 points. Yes, it was coming off a weekend, so it’s more than that. Still, given the rally, if CPI was not coming I would have expected more.
In fact, VIX volume BLEW up on Monday. Check out the volume on options that expire in one day:
Traders exchanged 103,000 of the 22 calls and 142,000 of the 23 calls.
On the puts, they traded 83k of the 19 puts.
This type of trading suggests incredibly wild moves for the VIX index today post-CPI.
Take a look at the straddle on the S&P 500:
It is $67.50.
That is about a 1.5% move in a single day priced in …
Based on the VIX action … it might be too small.
If we get a good number, I suspect we’ll get a rally, but not a strong one.
If the number is bad though, we are priced and seeing the VIX action for a VERY, VERY ugly day.
VIX could move extremely wildly today – and if the number is hot, it could be strong.
On Valentine’s Day, you gotta love that.
Your Only Option,
Mark Sebastian