BY ANDREW GIOVINAZZI
January 24, 2024
Yo Pit Crazies,
Watching order flow is a big part of trading options. Mark has been watching order flow in Endeavor Group Holdings (Ticker: EDR) all week and the stock popped on the announcement deal with the WWF. Paper jumped in buying calls expecting some news to break and were rewarded on Tuesday morning when EDR gaped open.
Paper, that is all retail and Pro order flow that is not a liquidity provider, was gobbling up the VIX Feb14 12 puts like a house on fire Tuesday. Those size call buyers in Feb and Mar I wrote about 2 weeks ago are sitting on some big paper losses as of Tuesday. I have not seen a close below 12.5 since December in VIX.
I did see something today that makes me think these VIX put buyers are right.
Let’s see what it is.
Big Contraction in the Gamma Rich Vols prior to Feb 02
I thought there was no way traders take down implied vol prior to the Fed FOMC meeting on the 31st. The short term options are loaded with gamma or the the ability to have explosive changes in value. Traders must be very confident that:
The Fed is doing nothing in the short term but sounding more dovish, similar to December.
Big Tech earnings are going to be solid.
Look below at the sigma volatility, vol per term, for SPX today. Traders sold options in the short term showing a high degree of confidence that Jan31 brings a smooth but steady rally. I am totally surprised by the degree of volatility smack today.
I did set up with hedged calendars in OP Mentoring going for the “carry+” outcome. That is own the move but pay no time decay. The SPY Feb02 480 puts got smoked but the call calendars kept up. At this rate I should get paid to own the SPY Feb02 480 puts by Friday and then let the chips fall.
This lower IV sets up 4900 SPX and beyond. We just hit 4800 last week! I might let the SPY call calendars ride deeper into next week. If you want to learn how to place theta positive/gamma positive trades check out the trading desk when I launch my Trading Pillars in OP Mentoring.
To Your Trading Success,
AG
Andrew Giovinazzi
30-Year Trading Pro
See what's hot at option pit
CAPITOL GAINS: SMR Aug16 7 call closed for a 150% gain
DELTA STRIKE: VLY Mar15 8 puts closed for a 88% gain
PFE May17 26 calls closed for a 66% win
OP MENTORING: SPY Mar22/19 510 put calendars and 520 calls for 6.4% gain
OPTION SHOPPER: ERX Mar28 65 calls closed for a 90% gain