Homework Problem:  You must fill out this sheet

Need Edge and Outlook (underlying price and vol)

Retail Edge

Realized vol

Skew

Forward Vol

VIX futures

SPY going to 450

Realized vol -strangle or straddle

Identify the conditions:

Volatility conditions you see

IV 12% buy with 16% REALIZED FOR 5 days

Items on the calendar so things can move

Find the edge:

Disparity in volatility  25% edge in volatility

Very easy for SPY iv to go up 1 pt or SPY to go up 1 point and the trade pays

Set up the position:

I want a real position

Identify the risks:

How do I lose?  In Greek terms  huge theta that could hurt if no move in 4 days

The biggest risk is the least likely-  SPY does not move/ VXX Jul30 29 or 30 puts

Describe the financing mechanism:

How do I pay for this? Have to figure out how to pay for the premium you buy  – EXPECTING AT ¾ MOVE and close the 442 call at 450 SPY

 What does the income stream look like and how fast you expect to get it. 

(TIME)- finance the trade for a period of time

Trade Management strategy from beginning to end:

What the heck do I do with this? 

450 I SELL MY CALLS FOR SURE

I would start selling puts at 438

Don’t fiddle since I priced out until thursday