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

Hey Traders,

The SPX closed Wednesday up 32.90 – almost exactly what the straddle price from the day before was predicting.

But take a deeper look at the movement, and you see that buyers had the chance to make out like champs:

Within the first few hours, the SPX was up about 50.

A straddle would have made huge dollars.

Now, CPI is out of the way – but PPI is heading our way.

The VIX smoked on Wednesday, closing down big to end the day at 13.54.

VIX futures also took it on the chin.

Interestingly though, the spread between cash and the index is incredibly wide:

VIX futures expire in a week. The spread between VIX futures and the cash is over 2 points!

If this gap closes toward VIX, SPX is going to break 4500. If not, we could see a trip below 4400 again.

Either way … there’s a really simple trade buying SPX options and selling VIX futures or buying July Puts.

I will be executing this exact trade today in the Trading Desk.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian