One of the things we concentrate on in our option mentoring is trading indexes. ?There is plenty to be made in the index space, typically on the short premium side. ?In the case of all the indexes IV has been overpriced for so long, ?all the way down to these levels, and continues to be overpriced. ? ?Index IV has been overpriced for going on a year and half and there is no end in sight. ?Perhaps the worst offender is NDX, especially in the past few weeks.
Take a look at the way the Index has moved since the beginning of the year, or more…HASN’T moved. ?
LivevolX www.livevol.com
The SPX on the other hand, has been only a minor offender, while the actual vol has been low, ?if one bought options directionally, at least the trader had a chance.
LivevolX www.livevol.com
I am a firm believer that index movement is cyclical, right now financials, are leading the way in the SPX, and tech is losing (lead by AAPL). ?That is going to have to change. ?With Index IV at 2007 lows again, one of these indexes is going to have to start moving. ?I also think the NDX and SPX are not going to be able to move this separately for too much longer. ?GOOG, MSFT, AMZN are all picking up more of the index in percentage, pulling from AAPL. ?Eventually, the index WILL start moving on the other tech’s backs.
The Trade:
I think it makes a lot of sense to go long QQQ calls near the money. ?A SPY/QQQ risk reversal short SPY, long QQQ could be a really interesting way to arb the lack of movement in the QQQ’s.
We have positions in the SPY and QQQ.
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