Aug SPX Volatility is still frothy

BY ANDREW GIOVINAZZI

August 13, 2024

Yo Pit Crazies,

Mark and I co go live on our new addition to the Trading Desk. How to trade the next wave in options? Find out here.

Not long ago, I was writing that the straddle at the money in SPX for a 30 day options was $130. I thought that was very inexpensive at the time and the market ended up proving me right as SPX dropped 300 points in a week.

Right now the 5 day straddle in SPX is priced at $100.

Monday Closing Price for SPX options

We are coming off a crazy week in SPX, inflation numbers and possible Israeli/Iran conflicts. How do you tell what a $100 straddle means for a week or a month? Mark and I will talk about options on Wednesday and what decay means to options.

Heck we spend a ton of time in The Trading Desk trying to avoid decay.

There are ways.

Decay is not linear and can actually stop or speed up

The theta, or time decay, on the SPX Aug16 5345 strike was $6.90 or $13.8 on the straddle per day. That is the value of both the call and put at the money. The straddle value changed from $108 to $103 from Friday to Monday. It decayed $5 but should have decayed over $25 during the weekend from Friday to Monday.

So what the heck happened?

SPX options on Friday Aug 09th

Traders can control options prices buy pumping up the forward pricing expectations. If they think things will move, they simply increase the price so that arrests decay in the meantime. Overnight in the PPI number SPX is the no decay machine but the market will remember those options need to decay. It just depends how much SPX moves in the meantime.

I think once the PPI number comes out, market makers will super decay the options pressing prices down. That will be a great scoop for the end of the week run. Watch for a quick price drop in the straddle Tuesday.

On Wednesday night, learn how to Control Decay. You will thank me later.