Hey Traders,

Monday was a booming day for the S&P 500,  it rallied 1.2% up 49.45 points to 4166.  The Dow Jones actually was the leader rallying over 500 points…the laggard,  the NDX.

The Mag 7 were actually pretty weak in relative terms,  AMZN aside.  TSLA is back below 200,  and there is one big earnings left on the docket…

AAPL…

What is amazing is that for how mostly bad earnings have been,  the expectations for movement from AAPL are actually quite muted.

Current IV’s are looking for a below average move, in a stock that has traditionally OUTPERFORMED its earnings implied move.

Something to note,  AAPL could be extremely underpriced in the options…

In addition we have the FOMC speaking on Wednesday…

What is amazing is how cheap owning gamma seems to be at the money in SPX.

Ahead of the FOMC meeting on Wednesday,  the SPX straddle is about 52 dollars.

That is about 1.2%…yep,  I can get 2 full days of movement including an FOMC meeting for the cost of how much we moved on Monday…

Oh and we moved that much or close to that much EVERY single day last week.

Actually…its been about that much all month:

And then there is the VIX…it is back below 20…but is by no means signaling that things are okay.

Despite the vol sell off on Monday, VIX futures are still in partial backwardation and the front end of the curve is flat.

Basically, while Monday looked great…nothing was solved and no decisions were made.

If you look historically at what has happened, and the way the VIX is moving…

Since mid-September it has been cycling higher:

We could potentially see another day of the VIX pulling back,  but I think we are in the midst of a swell.

The relationship between SPX movement and the cost of options is saying the same thing:

Implied just keeps going up and up, and movement is unable to catch up…this is probably not going to last.

Either the option and vol traders are wrong and VIX is going to get smashed…or we have a huge SPX move coming.

I would lean toward the former.

I have been walking through how to trade this scenario in our Trade Desk service,  another option is just to play extremely short dated trades…something our Bill Griffo does in win the week.

In win the week he opens trades on Monday and closes by Friday,  so that the trader trader doesn’t have weekend risk and is nimble to be able to manage the upcoming huge move that might be heading our way…

Liquidity is going to be key, don’t get caught,  win the week is the best way to trade this market and keep cash on the side.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian