Condor Options

How should you be positioned right now in U.S. equity indexes? Here are some key facts about the state of S&P 500 volatility:

• 1-month SPX historical close-to-close volatility is 17.07%
• With 29 days to expiration, SPX at the money August average implied volatility is 14.56%
• 1M VIX-style implied volatility is 16.48%
• 1M GARCH volatility forecast is 15.51%
• Mean 3M SPX implied volatility skew is 0.36, which is in the middle of its 1Y historical range. We update charts like the following one each week in the newsletter.
  

While SPX implied volatility is near the bottom of its 1Y range, the more interesting fact here is that every measure – from August ATM options to GARCH forecasts to even VIX-style weighted estimates – is already pricing in a further decline in statistical volatility in the near term. IV skew is not especially steep, either. Before concluding that SPX IV is too low, however, note that SPX 1M HV actually has further to fall vs. its 1Y range: in the first quarter of 2012, SPX 1M HV actually flirted with 7% on a few occasions.

We have several positions open for August expiration and we use data like this to build new trades. If you’d like to see a data-centric, rational approach to trading in action, consider becoming a subscriber.