Does Friday's Red Ending Spell Options Volatility This Week?

After a red ending to the week, traders look forward to even more potential volatility to come this week. As if the Fed events are not enough, the senate failed to pass the spending bill and instead decided to kick the can until Wednesday. Politicians are confident that they can pass it on Monday, but if they don't, then traders will get nervous again and sell any bounces the markets may muster at the Monday open. So, chasing the early trend could be a mistake. Atop of things to watch is oil. Last week, traders attributed the fall to crashing oil prices. If true, then this late Sunday night bounce in oil should provide some lift to oil. But this is a rigged markets as it is controlled by a handful of entities who can control prices and supply globally. The VIX (fear index) almost doubled in a week, which was not commensurate to the drop in the markets. So one can argue that it's leading the markets. Or this may just indicate that equity holders are not yet wanting to sell their holdings; a bit of hopium one can argue. Most importantly traders will be focused on the Fed events. Markets may have started to price in the removal of 'extended' period of time' from the Fed statement with regards to low rate duration. If they don't remove it and instead leave it unchanged, then I expect a rally. Bonds are at the center of market action. Bond market is huge and will impose its will over equity markets. No one can know the effects of a black swan event stemming from the blow ups of oil companies defaulting. Rates have surprised EVERY expert this year so flip a coin here. There is a decent chance that Oil prices could catch a bid this week: 1) A lot of the oil producing nations are suffering terribly from the drop in revenues and there will likely be internal pressure on Opec to ease off its price battle against the west. 2) open interest from Friday hinted at a possible price magnet around 58 / 59 area. This data changes daily so for now it's just another piece of the puzzle. How to trade this? Cash is a position! Given the binary nature of the entire week, trading is best left to the nimble only. Even then, one should be small and hedged. Going long a few beaten-down names of quality Google, Tesla, Apple, etc). Debit call spreads with some time to go till expiration is safest route. Going long names that held best in the sell off (Baba & CMG for example). Shorting a few equities that are likely getting washed out by lower prices (debt ridden oil related smaller companies). Debit put spreads would be a limited risk way to short) Check out this week's full recap below: