Happy Tuesday, traders…

Jeff here. 

In the past week, the market has gone full-on schizophrenic…

One moment it’s risk-on, then risk-off … and before you know it, it’s risk-on again. 

This back-and-forth, up-and-down price action has left many traders scratching their heads…

With headlines like, “The Worst Trading Week in Two Years,” quickly followed by, “The Best Trading Week in Seven Months,” it can be difficult to figure out how to position yourself. 

So, what does all this mean for you? It’s pretty straightforward: volatility is running high, and it’s not going away anytime soon. 

And while this green-to-red/red-to-green price action may confuse some, it’s presenting a huge opportunity for disciplined options traders.

With the right tools and strategies, you don’t need to predict where this ultra-volatile market will go next month, next year, or next decade…

You simply need to follow your rules and keep your trades on a short leash.

By playing the short-term moves and shrinking the game (shorter holding times, smaller position sizes), there’s no need to worry about the mid-to-long-term trajectory of the stock market.

That kind of predictive analysis might be useful for buy-and-hold investors — but for short-term options traders, it’s rather unnecessary.

In today’s Tuesday Market Outlook, I’ll break down several catalysts (occurring this week) that are bound to present some incredible trading opportunities for those in the know. 

Volatility: On and Off Like a Light Switch

In the last few weeks, we’ve seen volatility go haywire…

One moment, volatility is high, with wild swings in the market, and the next moment, it craters back down to normal levels. 

This constantly shifting paradigm confuses even the most experienced traders.

For example, two weeks ago, the market experienced its worst trading performance in nearly two years. But then, last week was its best performance in seven months. 

This is the kind of back-and-forth action we’ve been seeing — an alternating pendulum of risk and reward.

This rotation of “risk-on, risk-off” is a classic scenario in trading, but what makes this current period unique is the frequency and intensity of these swings. 

The volatility is becoming volatile in and of itself, setting up a fantastic trading opportunity…

How (and Why) I’m Trading the VIX

During these turbulent times, I’m trading the CBOE Volatility Index (VIX) within a range. 

The VIX, also known as the “fear gauge,” tends to spike when the market expects future volatility. 

In recent weeks, I’ve been trading the VIX between the mid-teens up to the mid and high twenties. This strategy has allowed me to capitalize on market fear and calmness alike.

Right now, we find ourselves back in the mid-teens, which to me, signals an excellent opportunity to get long on volatility. 

When the VIX is in the mid-teens, it suggests the market is a bit too calm, which could mean a potential spike in volatility is just around the corner.

If you’re a trader looking to capitalize on these kinds of moves, now might be a good time to consider a small position in VIX calls. 

It’s not just about timing — it’s about preparing for the next wave of market sentiment. 

The Fed Dilemma: Wednesday’s Big Decision

Now, let’s talk about the most critical event of the week: the Federal Reserve’s decision on interest rates. 

With traders wondering if the cut will be 50 or 25 basis points, the Fed is caught in what I like to call a “damned if they do, damned if they don’t” predicament. 

Here’s why:

• If the Fed cuts rates by 50 basis points, the market could interpret that as a panic move, suggesting that the economy is in worse shape than expected. This would likely trigger fear and lead to a market selloff.
• If the Fed cuts rates by only 25 basis points, the market might feel like the action wasn’t aggressive enough. Traders could see this as the Fed not doing enough to support the economy, and the market could still react negatively.

Either way, it feels like the market is set up for a bearish reaction, so I’m positioning myself for potential downside risk. 

(As mentioned earlier, I’m primarily doing this via VIX call options.)

It’s important to prepare for these kinds of scenarios because they offer great opportunities to profit from market moves, especially when others may be caught off guard.

An Often–Overlooked Catalyst: The S&P 500 Rebalance

As if the Fed’s decision wasn’t enough of a catalyst for one week, we’ve got another major event to watch out for on Friday: the S&P 500 rebalance.

For those unfamiliar, the S&P 500 regularly adjusts the stocks it includes in the index, removing some companies and adding others. 

This Friday, the S&P will be removing two stocks and adding two new ones. These changes can have a significant impact on the stock prices involved, while potentially creating an exciting trading opportunity.

I love trading the S&P rebalance because it often leads to sharp moves in the affected stocks. 

And the best part? You know it’s coming, so you can prepare for it in advance. 

This past week has been a wild ride for traders, and it doesn’t look like things will calm down anytime soon. 

Between the ongoing volatility, the Fed’s crucial decision on Wednesday, and the S&P 500 rebalance on Friday, there’s plenty of action to prepare for.

I’m focusing on volatility, keeping an eye on the Fed’s every move, and positioning myself for the opportunities presented by the S&P rebalance. 

Keep your eyes peeled for a Burn Notice alert for the weekend — this will be a heads-up on where I see the action happening (and how I plan to trade it).

In the meantime: Shrink the game, stay informed, and let’s make the most of this wild, unpredictable market.

Happy trading,

Jeff Zananiri

P.S. If you want to learn how to use options to take advantage of these crazy market moves…

Now is the time.

This FRIDAY, September 20 at 10 a.m. EST — I’m hosting a Special Burn Notice Event to go over my strategy in detail. 

I’m excited to see you there, but space is limited … Click here to reserve your seat!