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Wednesday, September 19, 2007

Volatility Plummet

The VIX started easing at the start of the trading day prior to the Fed announcement, but stayed in a tight range shortly after 11.00am ET. Right after the announcement, the VIX plummet down 5 points to end the day at 20.35%. It is not easy to trade the straddles or strangles in anticipation of a large move because it is hard to estimate the drop in IV as well as the index move and how much of the move has already been baked in. Adam talks about this in Pre-Fed Earnings play

As you can see from the daily chart above, the VIX is now sitting at the base of the Bollinger Bands and 19%-20% seems to be a support zone for the VIX. I'll leave you to think about where the VIX will head to after this...

posted by Simply Options Trader at 8:06 AM PERMALINK


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