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

Hey Traders,

On Monday, the S&P 500 managed to close up 4 points after being down as much as 30.

The VIX closed unchanged on the day.

Considering the weekend effect, that means the VIX was effectively down.

This week lines up to be interesting with CPI, PPI, and the FOMC minutes all being released.

What caught my attention on Monday was the last few minutes of the day.

Check out S&P 500 and VIX futures from open to close:

VIX futures were down but well off the lows, and it seemed to actually rally as the market was at its highs.

With over a week to go, the VIX curve is a little tight between M1 (April futures) and the cash market.

Either the futures are looking for a big drop in VIX, or they’re thinking that VIX is going to be pretty stable for the next few days.

What continues to be amazing is how cheap near dated options are:

The 4 day straddle with all that data dropping is only 60 points … that is too cheap.

I have to manage the gamma, but I think it will make me some money.

I am a buyer.

Questions about that? Comment below!

Your Only Option,

Mark Sebastian