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

The PCE inflation number will be delivered this morning

I have written a few posts about the effect this is having on VIX.

Despite relatively low realized volatility in the SPX, VIX is pricing in movement around 1.25% a day right now.

That is because the index is looking for a big move soon.

With PC,  the at-the-money straddle is pricing in a move of about $35:

This is too low of a number.

The average range of SPX has been 55 points-per-day of late … even if it has not ended that high up or down.

But what do traders think?

They answered in the form of their trades.

Thursday was a busy day, but there was one trade that stood out – a put spread.

A trader, or traders, built a giant one-day put spread in SPX, buying the Feb. 24 3950 puts and selling the 3900 puts.

Now, it is not that simple. This was almost certainly done delta-neutral, meaning it was tied to futures prices.

This means the trade leans bearish and does exceptionally well if SPX goes to 3900 – but a move to 4100 or higher, and this trader is golden.

The point is, he or she is looking for a VERY strong move on Friday and, like me, thinks the straddle is too cheap.

Whatever the number is, trade with the market. If it’s up, play the market up. If SPX is down,  play it to keep going.

Questions about that? Leave them in the comments below!

Your Only Option,

Mark Sebastian