Buyers have found their footing and are holding SPY above key intraday moving-average support. We’re taking this opportunity to place the following order:
Day limit order
Buy to open 2 SPY Nov 130 calls
Sell to open 2 SPY Oct 124 calls
Buy to open 2 SPY Nov 107 puts
Sell to open 2 SPY Oct 113 puts
for a net credit of $0.18 or better.
Note that 2 contracts is our base position for…
It’s been tough going these past three or four months, largely as a result of increasing market volatility similar to the July 2007 through April 2008 period that preceded the fall 2008 crash. But another factor has become an equally strong headwind of late: a pattern of front-month implied volatility rising more rapidly than back-month throughout the weeks preceding our target expiration. No matter how low IV is when we enter positions or how much front-month vol exceeds back-month, our…
Both the S&P 500 Index and the VIX are in limbo—but the sooner we get a trade on the books, the more chance we have to profit from time-decay at relatively low gamma. We have no clear indication of where implied volatility is headed, but the following trade has a risk profile well-suited for current conditions:
Day limit order
Buy to open 2 SPY Sep 136 calls
Sell to open 2 SPY Aug 136 calls
This morning’s rally has taken some of the pressure off our June positions, but the extreme front-month skew in SPY puts continues to keep our unrealized loss from backing away from our strategy’s 20% risk-management loss threshold. June/July skew for the 137 puts is an incredible 200%, and the June premium put sellers are demanding for strikes as deep in the money as 150 is more than $0.60—that’s only about $0.03 less than July premium in that strike range.…
I was quoted in a recent Reuters article about how the market correction has been perceived by options markets:
In the SPDR S&P 500 fund, the bearish sentiment is reflected by a high skew, a premium given to out-of-the-money puts relative to out-of-the-money calls, according to the latest weekly data.
“The recent volatility skew for SPY options expiring in April and May has reached levels not seen since last fall.” said Jared Woodard, principal at research/…
We’re opening the following position for January expiration:
Day limit order
Buy to open 4 SPY Feb 124 calls
Sell to open 4 SPY Jan 124 calls
for a net debit of $0.98 or better.
Note that 4 contracts per leg is our base-position size for single calendar spreads. Trading whole-number multiples of the base size ensures that adjustments will not result in unbalanced positions. Also note that matching our Model Portfolio risk profile requires a risk-based…
We’re opening a third double-calendar for November expiration (note that we’re again using calls at both strikes):
Day limit order
Buy to open 2 SPY Dec 123 calls
Sell to open 2 SPY Nov 123 calls
Buy to open 2 SPY Dec 120 calls
Sell to open 2 SPY Nov 120 calls
for a net debit of $2.06 or better.
Note, again, that 2 contracts per leg is our base-position size for double-calendars. Trading whole-number…
Forward volatility skew increased even more this week, keeping a damper on our unrealized P/L, but back-month implied volatility is higher, which is always good for our strategy. The status of our open positions just before the bell today showed distinct improvement:
SPY November/December Double-Calendar #1 (114/119): This position was trading around $2.24, for an unrealized loss of 5.9%. Base-position delta was about –14.3, or –3% of total capital at risk, and base-position vega was approximately 25, or 5.3%…
As I mentioned in this morning’s Portfolio Update, there are two reasons why our portfolio risk curve has deflated somewhat since we opened our second November position even though it should be benefiting from time-decay. Well, it has benefited from time-decay—just not enough to offset the effects of changing implied volatility.
A big difference between iron condors and calendar spreads is that we’re selling the differential in time decay between two expirations rather than two strikes at the…
A shift in perceived risk toward the short-term has put a drag on our currently open positions:
SPY November/December Double-Calendar #1 (114/119): Heading into the close Friday, this position was mid-priced at about $2.17, for an unrealized loss of approximately 8.8%. It carried a base-position delta of about –9.3, or 2% of total capital at risk, and vega of about 23, or 4.8% of dollars at risk.
SPY November/December Double-Calendar #1 (117/121): This position ended the week trading around…