Following up on Friday?s action, we did get a little pull back in the index skew yesterday.? VIX is in a touch and most of the vol. ETP?s might be even or down a touch with the market rolling in down .3%.??? There still feels like something is brewing out there, but I cannot put my finger on it.? Gold is getting trounced since Ms. Yellen is looking more hawkish than dovish.? Who knew?? T-bonds are still clinging to some near term highs and that always gives me the heeby geebies until the shoe drops.
That is nothing compared to what happened to the big growth names yesterday.? PCLN, TSLA and NFLX to name a few all got pummeled.? You can even toss GOOG in there.? For whatever reason today was the day to sell the beauties and I can?t help but think that is from someone big getting squeezed somewhere else, say in a too short T-bond position some funky FI arb.
The term structure got bid up in GOOG on the big move as the IV starts to jump prior to the earnings.? The part of the TS prior to earnings also jumped.? A good way to play a snap back would be to buy a wide butterfly in GOOG with a short term protective put on a ratio.? That way if the fund person who has to blow out their good longs decided to stop, you can benefit from a snap back.
The Trade
Buy a 50 handle-wide GOOG butterfly just OTM in Apr that expires before the earnings. The fly should generate some theta and you can use that to buy a protective put on a lower ratio than the call fly. ? Make sure the trade is flat vega at a minimum and short vega at a bounce target.
Think about short term long gamma in the TLT. ?If there is a little squeeze, it could get ugly. ?IV is real cheap in there.
disclosure: position in GOOG