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

We were pretty clear on Tuesday. Heading into the day, option prices were too cheap.

The S&P 500 was pricing in a 38 dollar move, we moved more than 60 points.

VIX took notice and perked up a bit, popping almost a pint to 19.59.

But that move put the S&P 500 right back into the true no man’s land…

We closed below the 50 Day Moving Average and above the 200. 

This hold above the 200 day recently has now converged with that long term trend line creating potential huge support:

This convergence is of particular importance.

If the 200 day truly breaks, and SPX closes below it for more than 2 days in a row…

There is not a lot of support below until we get down below 3900 toward 3850.

We now get to listen to Powell likely repeat himself on Wednesday.

Then we have Non-farms that lead into CPI.

So here is a trade idea. 

I don’t think we do much on Wednesday or Thursday, but we could move big on Friday and certainly next week.

A double diagonal spread makes some sense for a credit.

Sell a nearer term option expiring Thursday, buy an option further out of the money for Friday morning. Do this on both sides.

I think it pays.

Questions about that? Drop a comment below.

Your Only Option,

Mark Sebastian