Is it Time to Get Rich Selling Summer Vol?

Discussion in 'Options' started by livevol_ophir, Jun 7, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    IRM is trading $23.23, down a touch with IV30&#8482 also down 2.6%. CTAS is trading $24.91, down small with IV30&#8482 down 3.3%.

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    IRM has traded over 12,500 options on total daily average option volume of just 402. All but 22 contracts (not a typo) have been puts. The largest trade has been a sale sale of the Jul 20 puts 12,203x. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    CTAS has traded over 13,000 options on total daily average option volume of just 910. All but 28 contracts (not a typo) have been puts. The largest trade has been a sale sale of the Jul 22.5 puts 12,016x. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The similarities continue... The Options Tab for each (<a href="">in the article</a>) illustrate:

    1) The puts are opening for both (compare OI to trade size).
    2) Neither stock has an OI anywhere near the number of puts traded today on any line.
    3) July vol > the next month while both have earnings in that next month (earnings = vol event). The earnings dates for both are estimates, verify on your own!

    The Skew Tab snaps (<a href="">in the article</a>) for each continue the similarities.

    The trades are on lines (strikes) where July (yellow) > the next month (green). You can also see for both that the skew is fairly "normal" shaped - that is, the downside is bid (higher vol) and the upside fades lower (lower vol). These trades are selling elevated downside vol.

    Finally, the Charts Tab (6 months) is included for each (<a href="">in the article</a>).

    The dips in mid Feb for each look the same - but both never dipped below (or to) the strike that was sold today. Both stocks now hover a few dollars above the strikes sold.

    I've been writing for a while that pros tend to sell summer to collect premium over what is usually a dead period. Later they may (usually do) take that premium won and buy the Fall for a swoon.

    The trades today, though they seem to be in totally different stocks b/c of the totally different industries, are in fact very similar.

    The idea: If you're gonna sell summer vol, do it when it's elevated. The Jul vol for both is <i>above</i> earnings vol months, right after the market fell apart on Friday and has moved down/sideways today thus far.

    This trade could lose huge obviously, but if you're a summer seller, then the guys today feel like now is the right time. Though it's not the sexy trade, some professional option traders make the vast majority of their wealth in the doldrums of summer.

    Just for the record, I'm not convinced, but then again, I'm a big bear so take that with a grain (or a pound) of salt...

    This is trade analysis, not a recommendation.

    Details, prices, trades, vols, skews, charts here:
  2. Pinozi


    Booo - doldrummy markets - do not want!

    One added factor is the World Cup starts in less than a week so pretty much the whole world will be glued to their TV's for a month
  3. livevol_ophir

    livevol_ophir ET Sponsor

    World Cup!!!!!!!!!!!!!!!!!!!!!!!!!!
  4. Do pros exist or are they just fictional characters and "traders" that may have tried their luck and later turned to blogging and internet publishing to make money?
  5. livevol_ophir

    livevol_ophir ET Sponsor

    They exist. They sit about 18 inches from me on the NYSE ARCA SF Options floor. Then another seven feet or so... Then every few feet after that.
  6. Not sure how many years you've been in the business but from where I sit having been in the business for 20 plus years I don’t sell vol just because it’s the summer. I also would not even think of speaking for other pros or saying that any % of them sell summer vol. It’s more of an old cliché which has no value than something that actually occurs.
  7. livevol_ophir

    livevol_ophir ET Sponsor

    Not that many years, 'bout 2 1/2. I certainly can't speak to your personal experience, have no idea who you are... Just telling you what we have done and the various trading firms/MM firms. Sell summer and Dec (not blindly of course, but with an eye toward that). The other months are sort of "take 'em as they come."
  8. Synchr0


    Maybe im the only one who will say that. But thank you for sharing his information hope it is accurate and will make some people decent profits :)
    Keep it up
  9. livevol_ophir

    livevol_ophir ET Sponsor

    Thanks Synchr0. I must say, I get more flack on this board than any other. I appreciate the <i>positive</i> feedback once in a while too.
  10. Live I was not giving you flack. I really wanted to make the point that a blanket statement like "sell Summer Vol" is really not a good idea especially on a board which mostly has less experienced people reading it.

    Live, you don’t get a lot more flack then anyone else, it’s just that you post so often and you start so many threads the opportunity to correct you or pose an opposite or differing opinion is there more than with people who post a lot less.

    I also believe that despite the company you work for being an ET sponsor you fill this board with a lot of info that’s more involved with showing your product rather and asking a question or answering someone else’s question, which is the purpose of this particular board. Incidentally I took the free demo on your product, and when I am away from my trading desk I find it handy.
    #10     Jun 7, 2010