Yo Pit Crazies,

First thing, sign up for our Chicago trip before all the seats are gone. 

Option Pit uses the VIX curve as a tell to set up trades.

The reason why? The VIX curve shows market sentiment and how traders are thinking.

Using that skill is central to Option Pit Pro and there is a solid intro to it in OP Mentoring.

Know what the market is thinking – a novel concept! But do you know how? That’s a question worth pondering.

The first thing to understand is what is “normal.” The VIX curve below is “normal” except it should not be.

VIX Curve on the April 5 close.

Read on to find out why.

There Is A CPI Number Coming

When the VIX Curve is in contango, the market is expecting less volatility in the short term. That’s not my opinion, that’s the volatility per term. If volatility per term is less in the short term the VIX points down. 

Note the back month VIX future is still in Zone 4. That’s for the uncertainty surrounding future ramifications of current Fed policy. That VIX number is 9 points above the current realized vol of 15% in SPX – a massive premium.

The CPI number is Apr 12th. Vol traders do not care in the short term. That’s both good and bad.

The market expects inflation to be bad. 

The market expects inflation to be good.

Either way, the market isn’t pricing this as a big deal, meaning the narrative is shifting away from inflation and more to what the interest rate rises have done to the economy. 

So far the Fed has stayed course raising (the right course in my opinion) to bring some sanity back to US Gov Fiscal policy. 

Will Congress listen?

Realized vol is at one year lows which I think overall is bullish stocks.

I still think volatility in the Vol Products like VIX and the iPath S&P 500 VIX Short Term Future ETN (Ticker: VXX) is cheap here. The surprise would be to lower VIX numbers in a week post-CPI and Fed.  

This market is full of surprises …

To Your Trading Success,

AG