I said on Fox Business News yesterday that I thought we were setting up for a big one-day move. ?I said this because the conditions that existed the last time we blogged about SPX.?
The Spread between SPX HV and VIX is absolutely insane:
Livevol (r) www.livevol.com
I would point out that the last time the spread got this insane, the VIX went UP, not down. ?The other piece of data is the VIX term structure, which is still normal but barely. ?Cash is is trading all over the place due to holiday’s and the fear of the immediate:
As we see the front month future perform better and better and trade higher and higher until it’s almost flat with Feb, I start to worry that the direction of the move the market is is starting to price in is not up. ?If that is the case, it could be a rocky beginning to the New Year.
The Trade:
I think it makes sense to backspread into the cliff for a small credit. ?I also think a cheap upside call might make some sense as well.