Traders Are Nervous … Or Are They?

The Option Pit VIX Traffic Light Is Yellow: Volatility Is Going To Make Wild Moves.

Hey Traders,


As we head into the FOMC meeting and press conference on Wednesday, there sure is a lot of fear in the market …


Or is there?


While VIX is over 20, some of the action traded Tuesday speaks volumes (get it?) about what might occur in the next few days.


For a short period of time, the market looked like it was going to fall apart on Tuesday.


The Nasdaq 100 (Ticker: NDX) was down over 2%.


The S&P 500 (Ticker: SPX) was down over 1% …


The Dow Jones Industrial Average (Ticker: DJI) was the only index that didn’t look completely sick.


Which is why I was surprised when I saw the option volume for VIX options expiring a week from Wednesday (the 22nd).


Check out the trading:



There was almost NO call buying for December expiration!


The 25-strike calls did less than 30,000 contracts, and the 30-strike calls barely did 20,000.


Meanwhile, the December 21-strike,  20-strike, 19-strike, and 18-strike puts were all very active…


On a day the S&P 500 was down over 60 points, puts outpaced calls 1 to 1.2!



This is unusual, and shows traders are setting up to fade the Fed, at least in volatility terms.


The 18-strike puts traded almost 80,000 contracts. They are going to cost about $0.25.


I think that is a good value …


Your Only Option,


Mark Sebastian

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