How To Trade A Post-CPI VIX

Mark Sebastian

The Option Pit VIX Traffic Light is Yellow: Volatility Is Likely To Move Wildly.

Hey Traders,

Today is exactly why I did not switch the VIX Traffic Light to red …

The worse-than-expected consumer price index (CPI) numbers are putting heavy pressure on the markets.

And the VIX is reacting … a lot.

I said that CPI would be driving markets – and VIX – today.

But the high number, combined with the Fed’s James Bullard calling for a full point rate-hike, is pushing markets even harder than expected.

While the S&P 500 (Ticker: SPX) is down …

The VIX is up … really up.

The SPX ended down about 80 points …

Meanwhile the VIX is up almost four full points … and it started at 20 to begin with!

(In spite of what your short-term memory might suggest, 20 is not actually low for VIX).

We could see more follow-through tomorrow …

As in, the VIX could continue higher.

Again, this is exactly why I did not switch the Option Pit Traffic Light to red (which indicates volatility will fall).

So what should you do?

Well, the February 25/30-strike call spread is currently less than $1.00.

I think that is cheap, and could pay off nicely.

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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