options coaching

Was that the SPX Bottom?

Submitted by msebastian on Mon, 10/22/2012 - 4:34pm

For those of you that do not read VIXandMore, Bill Luby, someone I do a lot of work with wrote a great piece on the ratio between VIX and SPX realized volatility. It falls right into what we have been discussing on this blog. The market is hedged.

Even with Friday's move realized volatility is still really low relative to the VIX. Including Friday's move we are looking at a whopping 10 day HV of 12.5%, 20 day is about 11.5 and 30 day is 10.5.

Livevol (r) www.livevolpro.com

GVZ At Lowest Level Since Listing of GLD Options

Submitted by msebastian on Thu, 10/18/2012 - 4:40pm

One of the things we constantly talk about with our option mentoring students is option volatility and IV indexes. In all the talk of the 'low' VIX, traders may be missing a real opportunity: GVZ, the Gold VIX. Take a look at a chart of GVZ since GLD options were listed on the CBOE:

Thinkorswim

VIX Down, SPX IV Up

Submitted by msebastian on Wed, 10/17/2012 - 4:44pm

One of the things, we teach our option mentoring students is that the VIX is not always a trustworthy index. There are times where the index is up, and IV in the SPX is not, and vice versa. This is one of those days, and has been the case for a few days.

Here is a 3 month chart of the VIX:

Livevol (r) www.livevol.com

Notice that the index has been creeping down over the last few days. Does that mean SPX IV is down? Not in this case:

Oil IV is Too Cheap

Submitted by msebastian on Tue, 10/09/2012 - 4:27pm

Bloomberg asked me to talk commodities today. While not my strong point, I know enough about grains and oil to have a decent discussion with about anyone. However, today was easy. Here is why:

When I was on the train coming into work, I was thinking to myself that OVX and its sister CVF have both had a bit of a rally. I was going to talk about how expensive options were getting in WTI and in USO. Then I sat down and looked at the actual vols close up. For starters, USO IV is not that high.

Livevol (r) www.livevol.com

AAPL IV Now Higher than Earnings and Product Launch

Submitted by msebastian on Mon, 10/08/2012 - 4:45pm

Many of my option mentoring students LOVE AAPL. AAPL might be heading for some real problems here in the near term. If not problems, at least some serious volatility. How can I tell? While some traders will point toward the stock breaking its 50 day and 100 day moving averages, I would point toward something else, volatility. Since AAPL stopped whipping around in the spring and bottoming out in May, the stock has had two major characteristics:

1. The stock has almost moved in a straight line higher

2. The Option Volatility has been relatively low

Today, the Option IV officially broke the high since AAPL took off in mid May:

VIX pointing Toward A Breakout

Submitted by msebastian on Mon, 10/01/2012 - 4:37pm

While I continue to be a bit of a bull, there is something lining up that will at least keep me in cash or less short vol over the next few days. The SPX has done NOHTING over the last few weeks. Realized volatility is in the toilet at well below 10% over the last 10 days and right at 10% over the last 30 days.

Livevol (R) www.livevol.com

At the same time, look at what has been happening to the VIX. It has rallied and rallied and rallied over the last few days. At this point, the VIX is trading at 100% premium to historical vol.

SPX Premium Is Probably a Sale

Submitted by msebastian on Wed, 09/26/2012 - 5:11pm

Many of my option mentoring students are saying 'is volatility back?' worried that the market might blow up. Well, I am here to explain that. Despite the news that Spain is in the news again (how that is news, I do not know), I think the market is forming a bottom. Why? Because nothing has really changed. Let’s start with this sell off:

We had:

SPX Long Calendar Trade Forms

Submitted by msebastian on Mon, 09/24/2012 - 4:16pm

As we stated on our blog Friday, the two things that really determine the success of a long calendar are buying low volatility and a tight spread. For those of you who have been at this a while though and trade calendars, it is really just this: Price. A calendar that is too cheap is likely to win, and over time, trading calendars will win big. Let me be clear, I dont mean inexpensive, I mean, cheap; in that, the calendar should cost more than it is currently trading for at a given time.

AAPL Setting Up For Excellent Calendar Spread

Submitted by msebastian on Fri, 09/21/2012 - 2:59pm

What makes a successful calendar spread? It's actually pretty easy to figure out:

1. Buying low overall Implied Volatility

2. The right spread between months

In other words, being able to buy the back month option for a cheap price and then, relative to the back month option, being able to sell the front month option for an expensive price. Here are a few things that don't matter:

1. The time frame of the trade

2. The Theta (if you are using spreads as a theta play and not trading the vols, you will lose)

3. What months are bought and sold

Calendar spreads can pop up in odd places in some of the most active names. For instance, take a look at December IV vs Jan IV in AAPL:

A Look Back At GOOG

Submitted by msebastian on Thu, 09/20/2012 - 4:06pm

As I was sitting down to write the blog today, I have to be honest there were about 3 different things that I wanted to write about. However, they are either in the Option Pit Strategy Letter, written for TheStreet.com Option Profits Team, or in the hopper on something I want to trade that I don't feel like giving away yet (If there is a trade idea we like, there is a delay between the blog and when we talk about it internally).