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Now onto the post:
For a second there, I thought we might do it, as the market rallied quite hard today. I thought the VIX might break 30, as VIX cash fell below Sep futures, and then the market sold off. But still there are a few positives ahead of the Friday's labor report.
The VIX closed right near its August lows. Although, interestingly, real IV is higher now than it was at August lows. This is because while the VIX is the same price the SPX is about 25 points higher. The market is expecting another 8 points of movement on an annualized basis over the next 30 days. Yes, its small, but the small details make all the difference (on the lows SPX IV was at the lows since August 1st).
Another positive is that, while IV is slightly higher, IV for VIX options is lower; this means that traders are buying less upside protection and possibly selling calls on moves like today. I think the combo of touching near 30 and lower VIX option, IV points toward the VIX finally breaking 30 on Friday after the numbers come out. When it does break, do not forget that there is at least a full percentage point of weekend that is also going to fall out on Friday.
Trades I like:
I think we are going to get one more push up toward 1235-1245 range; at that point the market may turnaround again. Based on this, I think straddles are starting to look interesting, and if I like straddles, you know I like short time spreads. Once the weekend gets decayed out around 11:00 AM on Friday, it may be the right time to swoop in.
Those looking for 'income trades', the best option might be a November (yes November) condor, as it has an elevated IV and is far enough from expiration that we can set our wings extremely wide. Butterfly's and long calendars are probably a bad idea right now. To learn more about income spreads and volatility make sure to sign up for our course 'A Trader's Guide to Volatility" on our EVENTS page
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