At Option Pit we have been discussing with our the main focus of discussion between our option mentoring students is how we think we are on the uptrend of a slow downward oscillation. After the run up the last few day, we here at Option Pit Option Mentoring think the market could be getting a little tired. Here is why:-
The VIX is getting to the point where it is about to reach a new low since the flash crash. Once we get there we make fall a touch lower, but not much. Maybe we touch down below 21. Especially if tomorrow’s non-farms number is positive. Even if we get a number like that I would not be afraid to put on some sort of long weighted vega spread.
The market has had a lot of trouble breaking 1100, when it has it has quickly given any of those gains back and ran back to the 1040-1050 range. This could cause a pop in front month IV.
SPX term structure is really wide. I have talked about this a couple of times. When two SPX months get too wide the market is about to make some sort of big move. Currently with 42 days left to expiration, the SPX OCT 1100 NOV 1100 spread is over 2 points wide.
Looking at how SPX options appear, I think an Oct-Nov short time spread looks very attractive right now. If traders can sell the 1100 call spread at a price greater than 13.25 there is a good chance this trade will pan out. Even if it doesn’t win, I have trouble imagining it losing.
AAPL Weekly Follow-Up
I took a look at the AAPL weekly premium and as we predicted here, the straddle did not price out any of the weekend, nor did it price out all of that single day’s theta. It is only two months but for now, I think I have a somewhat working theory though. Expect premiums to move hard in the AM.
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