Tag Archive | "butterfly"

The Problem with Volatility Skew, and Why You Should Care

Friday, February 24, 2012


The jargon of options trading sometimes turns people off, and maybe “volatility skew” is one of the biggest hurdles. So I’m going to explain the concept in a straightforward way, and then explain why volatility skew is something you should care very much about. Volatility skew usually refers to the difference between the implied volatilities of options at different strike prices in the same expiration cycle. For the majority of stocks and indexes, options with high strike prices have low…

Bonus Trade: SPY November Butterfly

Monday, November 8, 2010


Our paid newsletter strategies are predicated on the expectation of mean-reversion (with risk-management rules for containing losses in trending markets)—in implied volatility as well as in price of the underlying. But when we find ourselves in a strong bullish trend, it's often desirable to both increase delta and decrease vega. One great way to do this is with butterflies...

Long Vega Plays for a Market Breakout

Friday, May 29, 2009


As pictured below, equity indexes have been highly range-bound since the end of April.  That trading range has been between about 470 and 510 in the Russell 2000, and 865 and 930 in the S&P 500. I doubt that this range is likely to persist for much longer. Fans of technical analysis will note that SPX and RUT are caught in the narrow space between their respective 50- and 200-day moving averages: a break above or below either average…

Option Strategies for Directionless Markets (Review)

Friday, July 25, 2008


Option Strategies for Directionless Markets: Trading with Butterflies, Iron Butterflies, and Condors Anthony J. Saliba, with Joseph C. Corona and Karen E. Johnson (Bloomberg Press: 2008) When traders are first exposed to spreading strategies like butterflies and iron condors, one of the first questions they always ask us is, “Can you recommend a book that goes into these strategies in more detail?  Where can I learn more?”  We’ve had to reply that there aren’t really any books that discuss iron…

Taking Lehman Profits

Tuesday, June 17, 2008


Back on June 4, we suggested some relatively conservative ways to play the potential downside in Lehman Brothers (LEH). Since we published that piece, the stock has dropped more than 13% to 27.20, and with earnings now behind us it’s time to revisit these positions. LEH July 40/42 call vertical – we initially sold this vertical for a credit of $0.34. You could buy it back right now for about $0.05, locking in a gain of 17.46% return…

How to Play a Lehman Collapse, Conservatively

Wednesday, June 4, 2008


In the days following the Bear Stearns collapse, Lehman Brothers was the favorite target of speculation for traders, especially those who missed the BSC and wanted their own chance to watch some cheap out of the money puts turn into real paper. After it looked like LEH had pacified the concerns of critics, they’re back in the news as everyone on the street suspects the company is in a real double-bind: If Lehman announces to investors that it…


Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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