Goldman put out a comment prior to earnings season, which was something that I happened to agree with. It basically pointed toward the fact that, while the VIX was overpriced relative to market movement, it didn’t mean the component parts IV’s were necessarily overpriced.
With Goodyear Tire (GT) stock trading 13.75, paper bought 9,000 of the Jan 12.5 puts paying a .05 against open interest of 7,900 contracts.
GENCO Shipping and Trading, Ltd. (GNK) stock is trading at 3.85, and there is significant call action on the February 5 calls which are being bought in size for .15.
A customer sold 10,000 of the CHK Jan 16/15 put spreads collecting .09 on the trade. This is against open interest of 34,000 contracts.
A customer sold 35,000 of the TJX Feb 45 calls starting at a price of 0.55 selling all the way down to 0.45. This was against an open interest of fewer than 500 contracts.
As I listen to traders belly ache about the ‘low VIX’ I ask them, why should the VIX be high?
Yet again I spoke to some unknowing trader that is worried about volatility rallying in the next few months. The trader suggested he buy VXX to hedge his portfolio.
I said on Fox Business News yesterday that I thought we were setting up for a big one-day move.
Traders there are two very strange things going on in the option world right now.
Much has been said of the ‘low VIX’ right now. I would question whether the VIX is really that low.
Over the years, I have made the argument repeatedly that I think SPX puts do a better job of hedging than VIX calls, especially in low VIX environments.
At Option Pit, our goal is to teach our option mentoring students not just the strategy, but the theory behind why one would execute a strategy. We want our option traders to learn how to construct their own trades, not just regurgitate others’ trades.