The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.

Hey Traders,

As I stated at the beginning of the week, volatility is way too cheap.

Traders are not pricing in the moves we’re getting in SPX.

The SPX straddle for Friday was about 55 dollars on Monday – we have moved over 88 dollars in 2 days!

So how should you approach trading here?

Let’s start with SPX – again, the straddle for next week is way too cheap:

58 dollars for the ATM straddle … we are going to move more than what they are charging.

What direction?  Could be up, but probably down. I think we get a big sell on the news on a debt ceiling deal.

Meanwhile, VIX futures are SUPER rich:

June is trading more than 3 dollars over the VIX cash index.

That’s more than a point too wide – there’s huge opportunity to buy VIX puts.

Buy SPX options, short VIX futures. It’s the play that keeps paying!

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian