The Eerily Flat SPX option volatility

SPX goes nowhere after a huge week

 

SPX option volatility flat on today’s trade news

Why does the SPX option volatility look so flat today?  I have a rule of 3 for volatility events.  It takes 3 bad news stories to get us to 20 VIX starting from Zone 1, 12-13 area.  Poor manufacturing, the Trade War and impeachment news was enough uncertainty to cause SPX to spiral last week.  I even alerted to strange action the prior week in a blog, A great unemployment number rocketed SPX up near 1.5 on Friday to close a volatile week.  It is hard for SPX IV to drop too fast after that.

China Trade Talks still rock the option volatility

almost no SPX curve shift in Edge Hunter Skew “curve” from Cboe Livevol

Once again the good news/bad news paradigm that appeared in Jun has not gone away.  SPX IV is not doing anything today because we have yet another round of Trade Talks.  At this point both sides want a win because Godzilla and Monster Zero are upsetting the global trade balance.  Someone somewhere has to give.  That does provide us with yet another short term binary trade event.

Alter the average strangle to make it fit current option volatility

Most of the trade around the current impasse has had very short bursts only to peter out into nothing.  VIX could again reignite since it is stuck in the “I don’t know” Zone 2.  $302 is the old high for SPY and we could get there from anything concrete this week and that is a big if.  Very short term long vol, like VXX calls which I normally don’t like, for this week and long some cheap upside SPY calls for next week could work.  SPY straddles are pricing 301+ or sub-290 for next week.  Those seem pricey but probably on the money.

Using Nets to Catch Butterflies from Option Pit and Cboe LIVEVOL

Disclosure: VIX, VXX and SPY

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