On Friday’s I host a podcast called Volatility Views with the great Don Schlesinger. ?He has many great sayings, but perhaps his best is: ?”There are options that should be sold, and options that should not be sold.” ?Right now, I think Don would clearly say now is not the time to sell options. ?The SPX is right near its all time high, not fundamentally important. ?But what is important is where IV’s and HV’s are currently trading.
The VIX closed at a 6 year low today, trading near 11.56 on the close. ?
Even the March future is now trading below 13.00% and Contango is at its steepest levels in some time, which points toward vol staying low. ?But- that doesn’t mean that options should be sold. ?Take a look at where 20 day HV of the SPX:
livevol (r) www.livevol.com
Not only is the SPX near an all time high, but SPX realized volatility is almost exactly the same level as the VIX right now. ?While IV might be forward looking (allegedly) and HV is?definitely backward looking, we should typically see a spread between these two measurements, especially when the VIX is at a 6 year low. ?With where the VIX is trading, I would expect HV to be near 6, not near 12. ?
Personally, I like this market, but for a 2% premium to the SPX I can own an ATM SPX June call. If I didn’t like this market, I could buy a put at just as cheap a level. ?I think stepping in and trying to sell puts or calls would be a mistake. We don’t want the Vega exposure: ?Sell a March or April future that is trading at a huge premium to cash levels to hedge off some of the long Vega from owning premium.
The Trade:
I would buy the June 1560 call for 35.00. ?If I hated the market I would buy a put (but I don’t).
Option Pit will be giving a webinar on how to use OptionVision to help spot order flow and build positions accordingly.? Click this link to register:??Option Pit “Using orderflow to trade options”
If you want to learn what all this means- ?This is the type of information we will train you to analyze in our?gold course. ?If you needed help following this trade, you should be in that course. ?Call us at 888 Trade 01 and ask for Taylor. ?Anna is leaving us and we wish her all the best.