The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
The SPX popped on Tuesday, running 58.83 points – a nice 1.46% rally.
VIX did not participate fully, though, only dropping .54 points …
Why?
The Fed, of course.
This is a huge week…
– Wednesday: FOMC
– Thursday: Earnings from Big Tech, notably AAPL
– Friday: Non-farm payrolls
The biggest event this week is clearly today.
What is the market looking for?
The beautiful thing about daily SPX options is that I can give you a pretty exact answer …
By looking at the straddle price – about 54 points for the 4075s – the answer is about a 1.44% move.
That is big.
Here is what we have seen out of Fed days in recent times: Red.
The committee seems to want to force the market lower…
Why? Wealth creates inflation, and they want to kill the wealth effect.
My guess is that the initial statement comes out and the market starts to rally. Then Powell starts to talk, and then …
Well, you know.
I continue to think at these levels you want to be really short long-dated vol. VIX is going to be below 15 consistently at some point this year.
But with that, you want to be long near-dated premium via strangles, straddles or just plain old puts and calls.
Whatever the initial move is today … is probably a fade.
Your Only Option,
Mark Sebastian