As of 12:35 PM central today, SPX is 2361 +6 and VIX is 13.52 +.65. That is unusual for VIX to increase on an up day, why is it happening?
Because there is unrest in the world and people want some insurance . With the US bombing the Syrian Air Base last week, and the bombing of the Christian Churches in Egypt, people are a bit nervous.
Throw in the fact that the SPX is up about 15% since November, and you can see why folk, especially fund Managers , would want some downside insurance with the VIX, and are willing to pay up.
Any Trading Opportunities?
With this Friday a Holiday for the market, I am a little lighter in trades this week.
In GOOGL, here is an pre-Earnings Calendar Play. Buy 1 April 28 Expiration 830 Call and Sell 1 April 21 Expiration 830 Call . Total Debit $9.55 . I just bought this live at 12:59 pm central today with GOOGL trading at 827.79.
Earnings will be the week of Monday April 24. The purpose of this Calendar is to put on a trade that shouldn’t have any Implied Volatility Risk. We are buying the long option at an Implied Volatility of around 22 and selling the short option at an Implied Volatility around 12.
Why would anyone buy a high volatility and sell a low volatility?
Because we are buying our long in an expiration that will be affected by earnings and we are selling are short Option in an Expiration that won’t be affected by Earnings.
Net affect, the long options should stay at the current implied volatility levels or go higher and the short options implied volatility won’t go up much and will start to decrease because they short options won’t be around to experience the wrath of earnings.
As I said, I paid 9.55 Debit and would sell this out for around 10.30 credit, about 8% yield. My short expiration is in 11 days, I would like to be out of this trade by this Thursday if possible. If GOOGL goes against me, too far under 830 or too far above 8.30, and the spread trades over $8.55, would probably get out.
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Dan Sheridan ~ email@example.com