VIX Keeps On Dippin’

Mark Sebastian

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

Hey Traders,

If you thought options were cheap leading into the FOMC, they’re even cheaper now.

The S&P 500 initially tanked on the FOMC statement that there might be more rate hikes coming.

The VIX actually went up.

Then the SPX rallied to unchanged.

And the VIX …

It got smoked to close at the lows of the day.

What’s interesting is that the range for the market on Wednesday was massive:

SPX had a more than 50 point range and in the morning made a serious attempt to break 4400.

So what do you do now?

For starters, I think the market is going to digest what happened on Wednesday and sell off.

Given we had a 60 point range on Wednesday, and we have a quadruple witching on Friday, options seem cheap (I know I sound like a broken record … but they are).

The Friday afternoon straddle is about 36 dollars. We have moved more than that intraday the past two days.

We are probably going to move more than that today.

I would buy the straddle and the VIX 14 puts expiring next Wednesday as a vol hedge.

Questions about that? Leave a comment below!

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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