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

On Wednesday, after Tuesday’s ugly trading,  I hosted an ‘All Hands on Deck’ session for Option Pit members.

During the exclusive session, we looked at stocks, indexes, and bonds.

One thing stuck out like a sore thumb, the relationship between realized and implied volatility:

After several weeks of implied vol trading at a premium to realized …

Movement is back to eclipsing implied volatility … and that means options are cheap.

The VIX curve somewhat confirmed this  by staying partially backward despite the ‘meh’ day on Wednesday …

The VIX is still showing a huge amount of confusion in this curve,not certain of the next vol move (thus the yellow light).

So how do you trade this…

When we are moving more than options are pricing I want to own premium.

In this case, I would either own SPX puts or SPX straddles.

Against this, I would own October puts.

There is a huge gap between the October future and cash … these are a buy.

Join us tonight for more ways to stay warm this winter – with profits.

Your Only Option,

Mark Sebastian