options educaiton

NFLX Vol Probably Too Cheap

We all know that as companies mature there can be some permanent changes to the implied volatility of its options.  They can go from low to high and back.  Think how the IV of Corning (had their been options) would have appeared when they were in the business of making ugly cookware vs high end glass.  That being said,  when a stock hits a certain level of volatility that the options become disgustingly cheap it usually makes sense to buy some premium.  Take a look at NetFlix IV:

Chart - NFLX - Netflix Inc._window_screenshot.png

Livevol (r) www.livevol.com

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Don't Hold VXX to Track VIX EX# 1000505

Just about every source has written about how, the VXX is what we thought it was:  a good way to day trade volatility and a terrible vehicle for tracking the VIX.  We have written  about it multiple times.  , Bill at VIXandMore has, Jared at Condor Options has, actually just about everyone has.  However, very rarely do we get such a clear example of how the ETN fails as a multi-day VIX tracker than we saw over the last two days.  Take a look at this chart:

VXXvxVIX.png

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RVX is Probably Cheap

While most coverage in the media is done on SPX and DJIA,  the really interesting index over the last few weeks is actually the RUT.  Take a look at the upward momentum in that index.  Also, take a look at how fast that movement has been.  It's incredible.  At the same time the RUT IV is going no where.  Take a look:

Chart - ^RUT - Russell 2000 Index Livevol_window_screenshot.png

LivevolX (R) www.livevol.com

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VIX and Bond Prices: Near One and The Same

We continue to say that bond prices drive the market.  Here is some intraday evidence.  While they do not perfectly coorelate,  I think one can quickly see how smart paper in bonds (via TLT) and VIX are thinking along similar lines.

VIX_16.PNG

LivevolX (r) www.livevol.com

I think the bond market is near calming down at which point so will VIX but the next day or so could be interesting.

The Trade:

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AAPL Setting Up For Excellent Calendar Spread

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:

GLD IV at a 104 Week Low, Precious Metals Getting Smacked

While many traders are talking about the low VIX (in IV terms yes, in HV terms debatable), under the radar is a different type of volatility sell off, commodities and precious metals.

SPX Up, VIX Up, Volatility Continues Trend Higher

When I asked on Wednesday if the VIX had topped out, the market responded with a resounding "NO!"  Since Wednesday, we have seen

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