With the market up big and coming off of a bit of a selloff, it is not much of surprise that the VIX is breaking 16 again. However, I think there is a more interesting story developing than the SPX. Expensive stocks are seeing their implied volatilities murdered by premium sellers. Take a look at this small list of 'movers and shakers' that are over 150.00 that hit 52 week low 30 day IV's:
This in the face of a faltering economy, and non-farms coming up at the end of the week. There could be a few reasons for these somewhat dramatically low IV's.
1. Weekly Options: any short term speculative paper is buying or selling weekly options
2. As the price goes up, it becomes cheaper to sell puts than to buy the stock outright
3. A perception that these stocks are going to slow down
I already wrote about one of these stocks and suggest a play for TheStreet.com (now published here on Yahoo finance). Another stock that has not quite hit its 52 week low that seems to have IV that is a bit underpriced is AAPL. Take a look at the AAPL 30 day IV.
The last two times the IV got this low the straddles were a screaming buy, and paid out somewhat quickly. Look through straddle prices today:
At under 12.00 the June 345 or 350 straddles both seem like a decent trade, especially considering AAPL's move of greater than 10 dollars today. However, despite having a slightly higher implied volatility, the July contract seems like a better trade. The trader gets about 29 more days of trader for just around 8 extra dollars. I have a hard time believing that AAPL is not going to move up and down less than 20 dollars over the next 44 days.
I think both could end up winners, especially given the WWDC conference coming up next week. The trader may have to gamma scalp in order to fully defend the position; I think using the options for gamma scalping is probably the better and more cost effective way. Obviously, scalping takes some skill (something we teach here at Option Pit Mentoring) but if done effectively, I think this trade could really pay off. The stock may not be trading below 325 or above 370, but it will get that movement. Traders need to take advantage of it though.
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