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

Tuesday went some way to proving my point from earlier this week – options are too cheap.

I had mentioned the at-the-money straddle for Thursday’s close was just 43 points.

How is it priced now?

With decay, if you did nothing you would be down money…

But at its peak, VIX was much higher on Tuesday and the SPX was much lower…

VIX topped out at 19.95,  this was at a point that the market looked like it might fall apart.

While the SPX and NDX were saved by buying in the last 10 minutes, one index did not participate in a meaningful way…

The RUT:

With the RUT closing down 1.79% there is good cause to believe we could see profit-taking – selling – see some follow through.

It might not be crazy, but we are likely going to see a retest of 4050 or 4060.

With that, we could see the VIX meander higher.

The real decisions will be made Monday as non-farm payrolls come out on Friday despite the market being closed.

How will I play it?

By buying the ATM strangle and selling VXX against it as a vol hedge.

That combo will make money.

Questions about that? Comment below!

Your Only Option,

Mark Sebastian