$SPX

The S&P has been up five days in a row, and the probability of a pull back is increasing. When we get this pull back I think that it will be a buying opportunity, a lot of people want to get their money working (especially at a lower price) and I think the pull back will be over just as fast as it started.

IV is not doing much, but the $VIX is well below $20 currently at $18.13. With earning season right around the corner, we could see an increase in IV levels and a long straddle on your stock of choice could turn out to be a great trade.

Currently I have an iron butterfly trade on the $SPX, and I received a $32.00 credit. My short strike is 1135 with 45 point wings. I feel like everyone else (which might be a bad thing) with predicting a sideways market and a low volatility market for 2010. Things could change, but at this time a sideways market makes since to me.

Volatility

Today I will be taking profits on my short puts that I set about a week ago.

In my opinion I think that volatility levels are now back at the bottom of the range. Now is the time to start adding to a long vega positions. I set $RUT calendar spreads yesterday to get some vega exposure. Now the $VIX is at about $22.10 and price could get as low as 20 again and that is alright, but if you want to start looking at long vega positions now is a great time.

There are a few other things that make me feel vol could pop over the next week. The first is the dollar, the greenback is closing in on the bottom of the wedge pattern. The closer the dollar gets to that level the higher the probability of going higher. Also the double top at 1100 is going to effect the vol levels as people will start to buy protective puts just in case we sell off from 1100. With 1100 in the cross hairs the anticipation of a pullback is ever growing.

To recap: Bullish on volatility, slightly bullish to neutral on the dollar, and I think a slight pullback in equity is in order maybe to 1075-1080.