VIX vs VXGOG Forming a Trade?
VIX vs VXGOG Forming a Trade?
We are constantly correcting our option mentoring students about the state of the volatility. The VIX is NOT cheap, it is expensive, not on a historical level, from that perspective, and it's about normal, but on a relative level. Check out the continued spread between 10 Day HV and 30 day IV.
Livevol (r) www.livevol.com
I have rarely seen the spread this wide, and it typically wonít stay that wide for long. So does this mean we should sell SPX premium? Yes, probably, but with a caveat. I do think there is some inherent danger in selling SPX premium as the market could actually blow up. As much as I think it makes to get short VIX and SPX premium, as it is a smart bet, smart bets still lose (think Tyson vs. Douglass).
It is important to find value to buy against what we sell, for instance AAPL and GOOG were super cheap in IV terms last week, so was VXIBM (actually both GOOG and IBM were at all time low). While it can be tough to buy on the absolute bottom, we could finally be seeing the market realize how cheap these options are, while GOOG vol bounced around some, it finally seemed to break out today:
Livevol (r) www.livevol.com
Notice that IV finally made a higher high after continuous lower lows and lower highs. At the same time, the HV/IV spread is tighter than SPX (meaning the gamma is cheaper). I have been riding a potential GOOG straddle for some time, I think it could be an easy win over the next week as the market studies the AAPL v Samsung effect and the overall SPX finally starts to move.
The Trade:
We think it makes sense to own premium via straddle or strangle in GOOG, AAPL and/or IBM also in a few other names, and to sell SPX premium against it, RUT could also work. Another good looking trade would be a long VIX put spread, or long VXX OTM time spread.
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Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
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