Option trader Mark Sebastian, of OptionPit.com, extrapolates on what he's been saying for a few days now about the correlation between volatility and oil, but also how closer observation reveals more about the future of SPX, once Oil stops selling off.
I have been saying for a few days that the correlation between Oil and SPX is kind of dumb and nonsensical. Close observation of the correlation shows that often SPX sells off with Oil, but once Oil stops selling off SPX would rally.
Now take a look at what happened Tuesday. The SPX rallied with Oil mid-morning with a high in the SPX over 18 handles. Then, as WTI and USO sat, the SPX dove on Russia fears and maybe the Fed.
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The SPX is going to be rough until the capital trying to get out of Russia gets out, and/or Putin finds a scapegoat to let him out of the sanction mess. This break the other way kills my bull play on the SPX.
The Trade:
I think the VIX exploded but it might be the end of the big Oil sell off. I am starting to look at pecking at some bull oil plays.
By Mark Sebastian, Blogger and Contributor, OptionPit.com
