Traders,

Equities are running hot out of the gate this morning. The S&P 500 gapped 1%, and the Russell 2000 jumped 2%. Perhaps more importantly for those who sold options at the height of the uncertainty, the CBOE Volatility Index is cratering. It touched 22 this morning after leaping as high as 31 last week.

Yes, the Fed announcement looms tomorrow and could thwart the market recovery, but traders seem to be choosing optimism ahead of the event.

Consider this example of how the vol crush is aiding put sellers. On 3/15, the Team Phoenix trading lab initiated a short put trade on SCHW by selling the April $45 put for $2.20. The share price was around $58. Fast forward four trading sessions to today, and with SCHW still trading around $58, that April $45 put has shrunk to 85 cents. Said another way, 62% of its value has evaporated in just a few trading days – even though the stock hasn’t budged!

That’s the power of implied volatility dropping.

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Gino’s Gems

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Chart of the Day: S&P 500 (SPY)

How impressive is it that the S&P 500 is essentially back to where it was when the bank drama began two weeks ago?

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