The Option Pit VIX Traffic Light Is Red: Volatility is likely to decline.

Hey Traders,

Today, Federal Reserve chairman Jerome Powell speaks in Jackson Hole, Wy.

Ahead of the speech, the August 26 PM SPX straddle is pricing in a move over 50 points!

The IV for today is about 30%. That is high considering VIX is 21.78…

And consider this …

On Wednesday night, the Thursday PM straddle closed at about $32.

This means that SPX traders are pricing about 20 extra points of movement once J-Pow speaks.

The VIX curve has also expanded.

The spread between September futures and the cash index is now almost three points again…

So how can traders play this conference?

With a pair trade!

Buy VIX puts in September. Buy out-of-the-money puts in SPX against it.

One of them is going to pay big.

With VVIX – the vol of VIX! – at 83%, there is not a lot of vol exposure in VIX options. I like the Sept. 22 puts.

Against it, I like the 4100-4000 put spread in September regular options for about 20.

Now…go make money!

Questions? Hit me the comments below.

Your Only Option,

Mark Sebastian