What The Fed Did [VIX Edge]

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

 

The S&P 500 boomed higher on Thursday, closing up 60.55 points. That’s off the highs, but still way up…

 

While the S&P 500 had a good day, VIX shorts did not.

 

The VIX rallied, running over 19 at one point and closing at 18.73.

 

Why?

 

There are a few reasons…

 

  1. Earnings:  AAPL, GOOGL, AMZN – a huge portion of the S&P 500 – reported on Thursday night (in mostly bad fashion)
  2. Non farm-payrolls are this morning
  3. The S&P 500 move was the equivalent of about a 22 VIX

 

Those are all very standard reasons for thinking VIX up and SPX up …

 

But the  futures moved strongly, too.

 

Check out the S&P 500 futures with the VIX futures on Thursday:

 

 

While I think we might be in a new pattern for the S&P 500, near-term … we might be a touch over extended.

 

I also continue to think vol, despite the big move on Thursday, is too expensive … so I would short both of them.

 

Buying UVIX 18 puts and SPX puts as a pair looks very promising.

 

Your Only Option,

Mark Sebastian

Mark Sebastian

Mark Sebastian

Mark Sebastian is a former member of both the Chicago Board Options Exchange (CBOE) and the American Stock Exchange (AMEX), where he spent years mastering the art of options trading in the most competitive environment imaginable. As Chief Investment Officer at the hedge fund Karman Line Capital, Mark manages sophisticated options strategies for institutional clients. He is the author of two highly regarded books on options trading: ‘The Option Traders Hedge Fund’ and ‘Trading Options for Edge.’ Mark is a frequent guest on major financial networks including CNBC, Fox Business News, Bloomberg, and First Business News, where he provides expert commentary on market volatility and options strategies.

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About the Author

Mark Sebastian

Mark Sebastian

Former CBOE floor trader and CIO at Karman Line Capital. Author of ‘The Option Traders Hedge Fund’ with over 30 years of options trading experience.

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