Yo Pit Crazies,

At least for a couple of days, the Gamma Bomb is going to hold off. 

We have a CPI number and yet another Fed Rate Decision. Anyone reading this newsletter regularly knows that when the Fed speaks, odd things happen. 

Even until late last week there wasn’t much of a bid for short term options.

That changed yesterday. Note the Sigmas for the SPDR S&P 500 Trust (Ticker: SPY). These options are the 1/10 cousin to the SPX, but the implied volatility tracks the same.

All the vols were sharply up. The question is why?

I did add strangles for this on Friday for the Trading Desk and they’re working out okay.

But why the bounce in IV now? 

Crazy Upside Is En Vogue Again

After 30 years trading, my one observation is that IV really blows up when the upside is in play too.  I know folks think it’s the downside, and it is. But skew is already in the options for the downside. 

I tried buying Invesco QQQ Trust (Ticker: QQQ) strangles late Monday and no go. I chased them for .20 before I gave up.

I figured it was better to just roll the calls in the SPY strangles I owned for the Trading Desk.  My call side was up quite a bit by the end of day Monday so I rolled it to Jun23. 

Note the difference in the IVs from this week to next week. The short term IVs got juiced because traders think the Fed will skip or pause. That could get us to 440. The Jun23 cycle is relatively cheap and decays slower that was my go to roll.

We’ve got CPI today and Rate News Wednesday. I don’t think SPY will be within 10 points of where we are today by the end of this week.

The 12 VIX will be closer to reality by the end of week as well unless there is a big monkey wrench thrown into the works.

To Your Trading Success,

AG