Yo Pit Crazies,
It had to happen.
Stocks went down.
There was no real news, just a case of the market getting tired.
However there is a clue in The Skew! (The Skew sounds like a pro wrestler for vol geeks.)
As traders coming for juice, that means puts in the S&P 500 … or not?
Let’s get to the nitty gritty.
Index Skew Is A Live Thing
Not necessarily a Wild Thing like in the famous kids book, but a moving thing … a living thing.
In the chart below, the blue line is the skew – vol per strike in SPX – and the gold line is where the skew moved to.
Notice how it was a pretty straight line yesterday. Put curve is on the left and call curve is on the right … just like we teach it in Trading Legion and OP Pro!
3 p.m. skew curve for the most VIX sensitive options.
Note by the end of day, 4 p.m. below, the curve vol “compressed” with the rise in vol a bit less than it was at around 3 p.m. Also note the right side, or call side, skew compressed.
The bid for upside contracts faded by the EOD as a bounce rally did not materialize.
4 p.m. skew curve for the most VIX sensitive options.
To sum it up …
We had a ho-hum day for SPX IV. There was not enough expansion in the IV as the SPX did not really move.
My guess in the Trading Legion today was that IV would hold up but there would be less movement. So far, I’m right.
If we do get a slow retracement I will close the put butterflies in the SPDR S&P 500 Trust ETF (Ticker: SPY) that I bought.
The Lesson: Real-time skew helps in pricing index trades. Traders in the pit do the same thing.
The Rundown
Capitol Gains w/ Frank Gregory
I closed out my Clean Energy Fuel Corp (Ticker: CLNE) for a 20% gain Wednesday. I like the the stock but I was in for 30 days and did not get the action I wanted, so took the gain and split.
Option Shopper
Licia is going Hot Tonight at 8pm ET.
Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session.
The Pro Room was slow Wednesday as the market lacked focus, but here was an exchange. My Robinhood (Ticker: HOOD) 1x 2 went unfiled all day.
Big Money Flow
Each week, Option Pit CEO Mark Sebastian looks at size institutional option buying with a twist. He mostly buys calls or puts to ride the large momentum trades.
Mark is back with a 23% gain in Delta Air Lines Inc (Ticker: DAL) calls.
Volatility Edge & Volatility Trading Club:
The Option Pit VIX Light Is Red. If the crisis winds down we will most likely see lower VIX into the mid teens this week or next.
Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!
To Your Trading Success,
AG