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

The VIX closed down .58 points to 22.29 on Wednesday

Given the S&P 500 only moved six points, the VIX held up pretty well.

I think this points to how important consumer inflation (PCE) is on Friday …

Iit is clear that since the beginning of February the market has decided the so-called Fed pivot is far more in doubt than traders were guessing at the end of January.

The best reflection of this is the VIX curve.

Take a look at how flat it is relative to the cash market and how on top of each other the VIX futures are right now

Here is another view, Take a look at the futures on Feb. 15 and Feb. 22.

The curve has had a massive shift higher and a major flattening event.

This is all just visual evidence of what the market is clearly saying: things have shifted and we are not confident anymore.

With PCE coming up on Friday it could be a match to light a powder keg …

If it is a good number, we are going to have a booming rally.

If it is bad, we are going to have a serious new round of selling.

I’m buyng SPX strangles for Friday. They are almost certainly too cheap. And against them I’m buying a bunch of March VIX puts

Why? Because if the number is positive,  this market is trying to rally so much, it might explode.

Questions about that? Leave them in the comments below!

Your Only Option,

Mark Sebastian