GS - Weekly Trade; Selling Vol Expansion

Discussion in 'Options' started by livevol_ophir, Aug 10, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    GS is trading $153.84, down 1%, with IV30&#8482 up 3.9%.

    <img src="">

    I want to look at another trade involving the weeklies. First, let's look at the skew chart as of 8-6-2010 (<a href="">in the article</a>).

    Notice how tight the weeklies' vol tracks the expiring monthlies. I've highlighted in particular the 155 strike in the monthlies and the 150 strike in the weeklies.

    Now, let's look at the skew tab today (<a href="">in the article</a>), as of this down day; as VIX has risen more than 5%.

    <img src="">

    I've noticed a pretty significant skew expansion and contraction in the weeklies across the underlyings on down and up days. SPY works even better, but I post those trades to so I'm not allowed to do it here per non compete. GS looks pretty good too though.

    Let's look at the Options Tab (<a href="">in the article</a>), and a possible trade.

    I want to look at a trade that's long 1 GS Aug (monthly) put for $3.30 and short 2 of the Aug 150 (weekly) puts @ $0.47. Total debit is $3.30 - $0.94 = $2.36.

    The idea:
    1) GS goes down to $150 by this week and we close it our for a nice win.
    2) If not above, then the 150 puts expire worthless and we sell the 150 puts again in the monthlies next week. This gives us one option to sell 4 higher vol options (note that we are using puts b/c the lower strikes are higher vol). And b/c I'm the biggest bear in the world and addicted to short deltas... But never mind that...

    Word of warning. This trade loses and is naked if GS goes down ~$8 this week. I'll track this trade moving forward. As of the time of this post I do not hold any GS positions. I may put one on soon though.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here: