Coming out of today, I do not want to make any prognostications. However, there are a couple of strange things that I can’t help but point out. I will actually probably end up making a guess at a few thing, anyway.
The VIX popped about 20% today to over 26%. The SPX is now off over 7% from the top. Bill Luby over at VIXandMore may be getting the 10% IV move on this particular move. However, I do not think that will be the case. I am thinking we are going to be flattish to somewhat up tomorrow morning. The main reason, the VIX did not pop over the high from January 22nd, and the IV of the VIX options is incredibly high. This is making me think we could run right back down to 21 in the VIX in no time (or the market may tank). Traders, I will say one thing. I may be willing to sell vega, but I certainly wouldn’t do it in the VIX.
The index volatilities are way out of whack right now.
When I was on the floor there were lots of trading firms that liked to trade the indexes volatilities off the indexes off of each other. They must be having a field day today. If I was running a market making firm I would be selling volatility in the OEX and the SPX and buying it in the NDX and the RUT. The most out of whack index of them all is the OEX. For the first time in recent memory VXO actually popped OVER the VIX. At the same time the VIX/VXO are over the VXN. The Russell has actually been moving the least over the last few weeks. Thus its IV is, relative to the other indexes, low.
How am I approaching this market as a retail trader?
If I am looking to sell condors I want to do so in the OEX or the SPX. The calendar spreads have also lined where the front month is well over the back month. I am looking to trade the calendar. Just to disclose I bought a several SPX calendars today. In the Option911 account, I bought 5 SPX FEB1060/1070 strangles, because I want the gamma, and then I sold 30 OEX March 465/490/495/520 split strike butterflies against them because I want to sell the vega. I would have sold straddles, but they paper account wouldn’t let me. I really wanted to get these trades on thus, because trade monster is so hard to get a paper fill on the trades are losing a little over 3k combined. That said, if IV’s come in tomorrow these trades will win big. I also attempted to buy the SPX 1065 calendar, although I did not have any luck. If I am playing the calendar game, price is VERY important. One note, if you do not understand 100% what I am talking about here, please do not come close to trying to trade one of these spreads.
Here is the trades from today-Don't try this at home!
Underlying Data
| Symbol | Close | Change |
| VIX | 26.08 | +4.48 |
| BTU | 41.10 | -2.97 |
| IBM | 123.00 | -2.66 |
| OEX | 490.07 | -15.12 |
| SPX | 1063.11 | -34.17 |
| WLP | 62.83 | -1.24 |
SPX Price Chart for Feb 4, 2010
BTU Summary
| -20 | BTU | JUN10 | 55 Call | @ | 2.25 | Currently | 0.86 | = | -20 | * 100 * |
1.39
|
=
|
+$2780 |
| 12 | BTU | MAR10 | 48 Call | @ | 3.30 | Currently | 0.61 | = | 12 | * 100 * | -2.70 |
=
|
-$3234 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
-$454 | ||||||||||||
 |
 |
IBM Summary
| 12 | IBM | FEB10 | 125 Put | @ | 0.94 | Currently | 3.68 | = | 12 | * 100 * |
2.74
|
=
|
+$3283 |
| 12 | IBM | FEB10 | 140 Call | @ | 0.74 | Currently | 0.03 | = | 12 | * 100 * | -0.71 |
=
|
-$853 |
| -10 | IBM | FEB10 | 130 Put | @ | 2.28 | Currently | 7.78 | = | -10 | * 100 * |
-5.50
|
=
|
-$5495 |
| -10 | IBM | FEB10 | 135 Call | @ | 2.03 | Currently | 0.07 | = | -10 | * 100 * | 1.96 |
=
|
$1960 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
-$1105 | ||||||||||||
 |
 |
OEX Summary
| 30 | OEX | MAR10 | 465 Put | @ | 7.50 | Currently | 7.50 | = | 30 | * 100 * |
0.00
|
=
|
+$0 |
| -30 | OEX | MAR10 | 490 Put | @ | 14.90 | Currently | 15.55 | = | -30 | * 100 * | -0.65 |
=
|
-$1950 |
| -30 | OEX | MAR10 | 495 Call | @ | 12.20 | Currently | 12.15 | = | -30 | * 100 * |
0.05
|
=
|
+$150 |
| 30 | OEX | MAR10 | 520 Call | @ | 3.30 | Currently | 3.00 | = | 30 | * 100 * | -0.30 |
=
|
-$900 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
-$2700 | ||||||||||||
 |
 |
SPX Summary
| 5 | SPX | FEB10 | 1060 Put | @ | 19.20 | Currently | 19.30 | = | 5 | * 100 * |
0.10
|
=
|
+$50 |
| 5 | SPX | FEB10 | 1070 Call | @ | 18.10 | Currently | 16.45 | = | -5 | * 100 * | -1.65 |
=
|
-$825 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
-$775 | ||||||||||||
 |
 |
WLP Summary
| 20 | WLP | FEB10 | 65.0 Put | @ | 1.60 | Currently | 2.97 | = | 20 | * 100 * |
1.37
|
=
|
+$2740 |
| -20 | WLP | FEB10 | 67.5 Put | @ | 2.40 | Currently | 4.95 | = | -20 | * 100 * | -2.55 |
=
|
-$5100 |
| 2 | WLP | MAR10 | 75 Call | @ | 1.30 | Currently | 0.21 | = | 2 | * 100 * |
-1.09
|
=
|
-$218 |
| TOTAL UNREALIZED LOSS IS (excluding commissions) |
-$2578 | ||||||||||||
 |
 |
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{ 4 comments… read them below or add one }
Mark, what do you plan on doing if the market continues to go down tomorrow like today? If you don’t do anything and the OEX is pretty deep in the money, you might get into trouble because OEX is an American style option. It might get exercised against you Friday, and if by Monday the market moves up, you could lose a lot.
sina,
im worried about a lot of things assignment is not one of them
ill explin next mailbag
ok. Could you also tell in the explanation what your plan would be if Friday market goes sharply lower and VIX goes way up – whether or not it happens tomorrow? thanx
Sina,
sure thing, will do tonight maybe