Coming off of a nice IV panic last Thursday, and a subsequent IV calming last Friday, markets like the one we have now can often throw many of my new options mentoring students for a loop. Many newer traders are so busy kicking themselves for missing a 'vol top' that they forget that IV is still somewhat elevated. As I look at the structure of SPX options, I see a few things I really like about selling premium. First off, IV is still elevated:
If we threw out Thursday and Friday, today would have been the highest IV day in the last three months. IV is still higher than 10 day historical volatility, which is higher than 30 day HV. This points toward IV being a touch overpriced. Now there is a HUGE caveat to this... if Greece gives a no confidence vote to its current Prime Minster and his cabinet, LOOK OUT! The SPX will be trading below 1250 and the VIX will be jumping toward 30. Skew in the SPX is somewhat elevated in both July and August:
With the SPX August higher than July, a skew over 150%, and about 60 days to expiration, I am liking the look of SPX condors. To make matters better, because of the elevated IV, a trader can sell a condor as wide or wider than one would have 10 day ago. This is part of the reason that 10 days ago I did not want to enter iron condors, and today I think they look interesting.
Going forward, I think the VIX is going to be hanging around 20 until the Greece situation resolves itself. If we get another pop, I will be trading VIX, VXX and SPX products into the announcement. One more reason I like the Iron Condor is that, even if Greece does look like it falls apart, I can set up a trader with 75% odds here that pays more the 1.00 for every 4.00 risked. With VIX vol still somewhat elevated, and skew even more elevated, there are some decent hedges out there.
Do not forget to register for my event at the CBOE tomorrow. You can do so here.
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Graphs from LiveVolPro
