It is time again to stop and take a look at the SPX. What is the realized volatility, what is the implied volatility? Should I be trading condors, butterfly's calendars? You have the questions; we will try and shed light on answers.
SPX Intra-day 10-Day Historical Volatility: 27.5%, less than what is a week ago, much less than it was a few months ago. Still elevated, but not insane
SPX 10-day inter-day historical volatility: 29.8%, again less than it was a week ago and even less than two months ago. However, volatility is still quite elevated in general.
SPX Blended 30 day out ATM volatility: 20.8% herein lies the problem, this is far below the realized volatility of the SPX, over 10 days, 30 days, you name it. That said, over the last three days the SPX has only averaged a daily range of about 12, that would be a volatility of about 17%. Thus, if this keeps up, it might not be an awful sale.
SPX intra-month skew: Currently the 10 delta strike is trading at an IV of about 135% in August (we expect this number to climb inside of 25 days), and about 130%. Neither of these are particularly elevated. However, I would say for the most part they are pretty normal. This denotes less fear of EXTREME movement than we had been seeing.
SPX inter-month skew: SEP is trading about .75 over AUG. This is too high for my liking, I general hate spreads where the back month is over the front month in IV.
What does all this mean? Condors were great a few weeks ago, then now do not seem as hot. However, I do not hate them, especially if the trader thinks we are going to sit for the next few weeks. Don't forget, most guys out there are teaching condors wrong so do not just slap one on.
Butterflies continue not to look bad and to perform reasonably well. Anyone who threw on a fly into the uptrend actually probably okay if they set the trade up properly.
Finally, stay away from multi month trades, if the trader insists it looks like a double diag is better than a time spread for sure. I was high on buying premium a few weeks ago, based on the trends, I am not in love with that trade either.
On Saturday I will be doing the second part of my two parter seminar on trade selection, make sure to check it out and register here: The Option Club. Also, don't forget to check out the pit report. Shoot me questions mark@optionpit.com and I will answer. If you have any questions about Option Pit you can email us as well or call 888 Trade-01. Have a good trading day!
data from ThinkorSwim, charts from LiveVolPro
