The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move Wildly

The S&P 500 continued higher on Friday, briefly trading above 4,000 before closing at $3,992.93.

Now traders are asking themselves how long this will last.

The answer is .. it could be for a while!

Just because the economy is not great and we have inflation does not mean the market cannot go up.

Remember the unrelenting rally the S&P 500 had in July and August:

Over the course of a few weeks the S&P 500 rallied about 400 points.

We could see the same happen again.

We also may have established an uptrend:

We have a clean break above the 50-day moving average. The 200 DMA is about $4,081.5. We could easily run there.

That was where the market died in August – and might be where we die again.

The rally could last several more days … but I am not certain that the sell off is entirely over.

Here is what I am certain about: Options are cheap on SPX

Look at realized vol in the S&P and then look at implied vol …

I cannot remember a time the spread was so wide.

With VIX November and December futures trading at huge premiums to cash, there is an easy hedge:

At this point I think an easy play is SPX strangles vs long VIX puts in December.

Your Only Option,

Mark Sebastian