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Home › Forums › Closed Trades › [CLOSED -35%] Volatility Buy in SPX
Setup: Oversold Vol
Price: IV of 10%
Description:
We don’t get this very often…. The VIX is coming into a 12 handle. Now keep this in mind, the VIX can stay low for much longer than you think. The way it sells off is different than the way it rallies, because it’s a statistic.
Also, trading VIX options wouldn’t really help too much. While the spot VIX is sitting at 12, the Aug VIX future is all the way back up into the 15’s… it’s not the best risk/reward in the world.
Instead, the best structure here is to buy SPY Aug straddles. These options are currently sitting with an implied volatility of 10%. Now I’ve seen lower, down to 8%, but given the fact that SPY hasn’t moved in a while then we can also see profit from the actual stock price movement.
Here’s the trade setup I like:
Full Time Profits Order Ticket | ||||
Type | Asset | Duration | Strike | C/P |
---|---|---|---|---|
BTO | SPY | 19 AUG 16 | 216 | Call |
BTO | SPY | 19 AUG 16 | 216 | Put |
Total Debit: | 5.1 |
If you’re not comfortable with this, then scale in, one round at 5.11 and another round at about 4.50.
Breakevens are 221 and 211. With 30 days to expiration. That’s a lot of time, and it’s possible to hit those levels really easily.
Putting this trade on with slightly different strikes:
Full Time Profits Order Ticket | ||||
Type | Asset | Duration | Strike | C/P |
---|---|---|---|---|
BTO | SPY | 19 AUG 16 | 216.50 | Call |
BTO | SPY | 19 AUG 16 | 216.50 | Put |
Total Debit: | 4.90 |
Taking the loss here as there are under 2 weeks to expiration and risk of reversion is too high.
Full Time Profits Order Ticket | ||||
Type | Asset | Duration | Strike | C/P |
---|---|---|---|---|
STC | SPY | 19 AUG 16 | 216.50 | Call |
STC | SPY | 19 AUG 16 | 216.50 | Put |
Total Credit: | 3.15 |
Total Debit should be Total Credit in the order ticket.