sell premium

Is there Any Vol To Sell?

Submitted by msebastian on Fri, 08/10/2012 - 5:55pm

As many of you option traders know, the VIX closed below 15 for the first time in some time. While I think the VIX is getting pretty cheap, when we look at all of the equity vol indexes, some equities look even cheaper. There are few things to remember:

1. While a 15 VIX might seem low after the last 4 years, it would have been above normal between 2004 and 2007.

2. There are always things that are more cheaply priced.

3. There may be trades that are more expensive in relative terms.

SPX About Ready to Bounce?

Submitted by msebastian on Tue, 07/24/2012 - 3:15pm

One of the things I teach my option mentoring students to do is to watch for when traders are buying/ selling premium. It's one of the greatest tools a trader can gain during his or her option education. While everyone is probably out there panicking about the deterioration in the Euro, how bad the US economy is, and AAPL earnings, I am wondering whether today might be at or near a short term bottom. Here is why: Premium is being sold today.

Notice the level of the VIX; while the market is now almost 10 points lower than it was at its worst yesterday, VIX itself has yet to touch a new high on the week (as I write this).

When VVIX gets near 80, it's a buy, so is VIX

Submitted by msebastian on Fri, 07/06/2012 - 1:46pm

One of the things this blog tries to do is to teach option traders why one cannot blindly sell premium (or buy for that matter). We try to teach option traders that one has to have some sort of idea on WHY they are entering a trade. Here is a great example of something we have noticed at Option Pit:

While VVIX, the VIX of VIX, is relatively new as a listed index, there have been other similar measurements out for some time on the vol of VIX. If we have learned one thing, its this: while realized vol measure on VIX might be tough, since the histroy of active VIX options trading in 2006, when the IV of the options begins to approach 80%, it is time to buy VIX options, because the price of the options is going higher.

Are you a RUT Iron Condor Seller? Better Think Twice

Submitted by msebastian on Fri, 03/23/2012 - 7:41pm

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I am a huge proponent of iron condors; I think they can be a great spread as a part of a portfolio of option positions (both long and short). What I am not a fan of is those that insist on selling their iron condors in the same product every month, regardless of what is going on. Why? I'll explain:

Why Overnight Risk is Huge: Even Down Days are Boring

Submitted by msebastian on Tue, 03/06/2012 - 6:03pm

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Yes, it appears that there is fear in the market again. However, I would argue that today was utterly boring, if I were to look at the way the market moved. Take a look at how the market moved throughout the day:

livevol (r) www.livevol.com

SPX and VIX Will 'Tell' Next Move

Submitted by msebastian on Mon, 02/13/2012 - 6:26pm

Today, on MrTopStep, I mentioned how I noticed that the VIX was creeping up, and the market was creeping up last week at the same time. Clearly a bad sign. Over the last year, that relationship has been an important one to watch from day to day and from price level to price level. Day to day, when we see days where correlation of the VIX and SPX don’t line up, that has been a telling sign. More interestingly though, may be the price level to price level.

As I noted for Mad Money a while back, and at one point on Fast Money (I know, I am a name dropper), the VIX and volatility are really relative indicators. A VIX of 19 or a VIX of 30 really does not give any true indication of where the market is heading, only a relative price level of the VIX.