BY MARK SEBASTIAN 

August 22, 2023

Hey Trader,

On Monday the S&P 500 rallied over 30 points closing the day just below 4400 at 4399.77

The NDX on the back of a HUGE rally from NVDA closed up 1.61%.

Yet the VIX was only down .13 points closing above 17% again….yes weekend adjusted,  this is down about .90 points…

But given the rally in the S&P 500 and the Nasdaq 100,  under normal circumstances, I would have expected more.

A relief rally usually sees volatility get destroyed.

Yet Volatility continues to be frothy…

20-day vol has ticked up slightly to almost 10%….good for a VIX of about 12.5…

Yet look at IV on S&P 500 options:

The spread between realized and implied is now approaching 5 points…50% of the RV number…

We see spreads get wider…but typically NOT when VIX is in the teens.

I will repeat what I said last week…there is a massive move coming in the S&P 500.

It might be up…it might be down…but it is coming.

It could come on the heels of NVDA earrings…those earnings are literally the most important of the whole cycle.  The stock has been so hot…if earnings are just great…instead of spectacular…the stock is going to get smoked.

It could be Jackson Hole…J. Powell is going to either be neutral,  pour cold water over the hopes and dreams of longs,  or come out really doveish…the latter of the two will make a major move happen.

As my fellow trader, Bill Griffo has been discussing…it could be the BRICS summit….could they really go after King Dollar?

Heck, it might be bonds…if they take one more dive…things are going to start getting ugly (as Bill Says…watch the MOVE index).

Regardless of what the catalyst is…the move is going to be huge…I think we move north of 1.5% in a single day.

So what would I do?

I would buy S&P 500 strangles and hedge with VIX options.

I will go through the exact trade in Trading Desk Tomorrow.

Questions about anything? Leave a comment below!

Your only option,

Mark Sebastian