strong>This morning the VXN and VIX inverted again. This inversion was not nearly as wide as the inversion from a few weeks ago. I am testing to see where traders can get in and out of this spread and be profitable. Today, I sold 14 SPY 109 Straddles for a price of 8.10, I bought 8 MNX 177.5 straddles for a price of 8.70. The trade is as close to premium neutral as I could posibbly get it.
| SPY | MNX |
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When the trade was entered the VIX at 24.32, the VXN was at 24.09 for a difference of .23. The big difference between this spread and the last was that I could not get the mid point to fill. So I ended up pay .05 higher than the mean of the bid/ask spread on each straddle. Since I paid up, I now have to calculate what implied volatilite I actually bought and sold. Here is an example of a quick calculation I would have done on the floor:
The VXN is 24.09,
The MNX straddle has a vega of .60,
I paid .05 over the the mean of the bid/ask spread,
.05/.60=.08 Thus, I bought the straddle .083 vol points higher then the VXN (traders should note, the VXN is just an approximation for the actual implied volatilty I bought, I am chosing to be practical, the price for practicality is less than perfect measurement of implied volatility for this spread). 24.09+.08=24.17. MY VXN is 24.17
The VIX is 24.32
The SPY straddle has a vega of .36
I paid .05 over the mean of the bid ask spread,
.05/.36=.14 Thus, I sold the straddle .14 volatility points lower than the VIX. 24.32-.14-24.18 MY VIX is 24.18.
So in this case I bought and sold the about the same volatility on the SPY and the MNX. I will be interesting to see how this straddle swap plays out. I will have to be extra careful on execution when I go to exit this trade. Today the straddle swap lost $205.00 I will discuss the trading plan tomorrow. For those of you following the XLV trade, it made 25.00 today.
A few other announcments, I will begin using trade monster's new analytics to display all of the trades I enter. While they are an official sponser it will not affect the quality, content, or honesty of Option 911. Also, anyone who is interested in using their platform if you type in the promo code 911, Trademoster will give traders .50 a contract on four legged trades with a miniumum charge of $12.50. I explain the special commission rate on this page. Click here or on the TradeMonster ad to get this special commission rate
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