Where the vol is

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This day kind of reminds me of the anticipation before walking on a trading floor some mornings.  Something is going to happen but you just don’t know what.  The first instinct is to raise the bid in the options a little bit and do some price discovery.  The corporate earnings news and economic data has been pretty good lately so the heeby geebies are not from there.

The there is in the Ukraine and Gaza and that is setting a sad back drop for a mostly rosy market picture today.  The rule I learned early is the market hates uncertainty and there seems to be something behind door number 1 or number 2 but no one really knows what it is.

3D Skew by OptionVision

Note where the skew is catching a bid today and that is mostly on the upside.  The SDEX which measures downside skew is down on the day as the ATM options are catching a bid and the downside volatility is fading.  This feels a bit like price discovery to me and it is on the run not the drop.  The upside is lurking as it has so many times this year when traders least expect it.  That is feeling like right now if we can get past the issues on the other side of the Atlantic.

The Trade

Use the bid in upside skew for Upside Broken Wing Butterflies in the indexes for credits 2 weeks out.  Set them for max benefit on a $200 SPY.  If the geopolitical stuff gets ugly, keep the credit.

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