For those of you that were looking to sell premium ahead of the weekend, that chance has now passed (read here if you don't understand what I mean). The VIX at one point fell below 16, which would have been a very interesting time to consider buying premium as I think the trader would basically get tomorrow and the entire 4th of July weekend for some sort of event, either positive or negative to happen. Be that at is may I think premium is starting to look like a buy at these levels:
There are a lot of things that can happen between now at next Tuesday, a 16% VIX with a market that is moving at a clip of 10-15 points a day in one direction should have a decent shot at profiting. For those that don't want to own straddles, term structure widened at points today that time spreads began to look like monumental sales. The S&P 500 Futures Options Short July-August call spread sold at 14.75 with the ES around 1315 seems like a great sale to me, especially with employment numbers coming up next week.
The goal of a trade like this is to either get a lot of movement, preferably to the upside and then to buy the spread back for 12-13 dollars a spread. The other way this trade could win is if the market gets a nice sell off and July IV pops harder than August (something I would consider likely). The key to the second trade would be unwind after gamma and a front month pop increases July, but before IV as a whole catches a major bid.
The risk involved in a trade like that is essentially decay, as I have trouble imagining the spread between July and August getting any wider. In fact, if IV were to come out of the market the trade could potentially make money even being long the front month. And as I stated with weekend decay gone, this is a free gamma play through Tuesday.
I hope everyone has a happy Fourth of July; I am going to post a follow up from Ryan Baird tomorrow unless something crazy happens tomorrow.
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Graphs from LiveVolPro and TD Ameritrade
