Yesterday during the Mid-Day Pit Report I was pointing out how wide the IV spread was between September and October. With the market up on the day I pointed out that the implied volatility spread between the at-the-Money September calls and the at-the-money October calls was almost 2 points. This drove the price over 14.00 at one point yesterday.
This trader did not get the best execution, but I wanted to relay the actual trade. The trade sold the Sep-Oct 1085 call spread with the SPX around 1080 for a credit of 13.25.
That volatility spread was still over 1.5 points on this time spread. The trader then put in a bid to buy the spread back for 12.20. This would have been a return of 8% on a standard long calendar. However, the fill on the open this morning was good and it traded at 11.75. That is a return of 150.00 in a day, or 11.3%. This is in a single DAY.
This lay up of a trade is no longer there, but will likely reappear to traders that understand how options function. Traders, this is the power of understanding volatility and term structure. Yes, it is very important to understand how to sell premium. But for any trader there is a lot more to learn than simply 'sell a condor.' On thing to remember, the other side of this calendar is lost what my trader is made. That is why we do not simply slap the same trade on every month here at Option Pit Mentoring. No, our option trader's learn through the mentoring process that there are in fact more favorable trades than others.
Do not forget that Expiring Monthly just published with a focus on the weekly options. Check it out and subscribe here: Expiring Monthly.
graphs from TOS and LiveVOL
