Can CPI Get the Market Rallying?

Mark Sebastian

The Option Pit VIX Traffic Light Is Red: Volatility is likely to slide.

Hey Traders,

The S&P 500 is almost back to 4450, just off its highs for the year.

Yet the VIX is trading at 14.84 – almost 2 points higher than the low for the year from mid June:

What gives?

The answer is … it’s the economy, STUPID!

Today, the CPI number is released – we saw what hot employment numbers can do to the market …

The S&P 500 dove last Wednesday when the ADP number hit.

We could be set up for the same … so what is the market looking for?

The market is pricing in about a $32 move – that’s good for about .7% move in the market.

Seems like it should be more expensive right? I think it should be.

Now I would not be buying this straddle ahead of CPI, but options in near dated SPX contracts are simply too cheap. We keep getting these outsized moves …

I’d be a buyer of a straddle with the right duration.

I’ll be laying this out in the Trading Desk tomorrow after CPI is released … which is really when the fun begins.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian

VIX Edge

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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