In the last year there have a been a few of these market sell offs. ?In those sell offs there have been a few things we see in common:
1. ?They typically have a second leg up
2. ?They stall out around the 50 day moving average
3. ?They have been buying opportunities
4. ?Realized volatility quickly subsides
LivevolX (r)?www.livevol.com
However, there are a few small differences between this move and the others over the last year namely:
1. The magnitude of the moves: ?intra and inter day vol has been high and Friday’s sell off was the biggest in about 2 years.
2. ?Futures went backward. ?We saw VIX cash go backward on occassion, however, we had not seen VIX futures with this much time left to expire go this backward in some time.?
The Trade:
The market is basically handing traders a short time spread. ?It looks like an interesting trade here and could potentially pay off if there is a hard move up OR down.