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A Huge Week in the Markets, and Option Traders Don't Care

Go ahead. Yawn. You know you want to.

It's Kind of a Big Deal

Josh Brown over at TRB just put up a post with this title: "A Very Big Week Ahead." He goes over the market-moving events for this week, many of which are very rare and could provide perceptual changes of value as well as sentimental shifts. We've got elections, FOMC rate decisions, jobs numbers galore-- so it should be a very volatile week.

But to the options market, it's a big yawner.

Where's the Premium?

Now the VIX is still fairly elevated. We have a closing reading of about 21, which is still at a hefty premium relative to the current volatility in the markets-- 20-day HV is around 11.

But remember, the VIX is normalized on a 30-day basis. The weekly expiring options tell a different story.

The SPY 118 Weekly straddle was pricing in at around 2.90. That means the market is expecting a 2.9 point move either up or down by this Friday. That's around 2.5%.

Let's put this in perspective:

This is a 6 month weekly chart of the SPY. The chart on the bottom is the average weekly range, over a 4 week period. So over the past 4 weeks, we've seen, on average, a 3 point movement in the market. The current weekly options are expecting volatility comparable to April's price action.

Of course, we can see volatility within mean reversion like we did in the summer, but it still seems that the short term premiums are coming in a little light-- it could be telling us that noone wants to really protect themselves going into this week, and that vol might actually be a buy.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/