IV on SPY puts

Discussion in 'Options' started by DataCruncher, Jan 30, 2008.

  1. Options gurus, I am thinking of buying some puts on the SPY ETF.
    I am wondering how relatively expensive they are right now. Has the implied volatility on SPY puts been pumped up in anticipation of today's Fed meeting?
  2. Its not that its so pumped for the FOMC meeting. It is pumped from the recent moves in the market. The spread between the implied volatility and the historical over the same period is pretty wide, in addition the OTM puts via the skew are juiced even more.

    The two sided coin on buying OTM SPY puts...

    If the feds moves today creates a market sell off chances are ( if its strong sell off ) volatility wont come in at all in fact it will probably go up. That being the case your OTM puts will out perform their delta.

    On the other had, if for some reason the market rallies off the FOMC news then those OTM puts will not only suffer from the delta, also implied volatility will fall and they're going to get hit harder then their delta implies.

    Its a crap shoot when straight buying options to leverage a directional speculation especially with OTM options.
  3. Since ETFs are less volatile than a high-beta stock like BIDU or AAPL, is it safe to assume that the variations in IV on the options will also be less volatile? In other words, when SPY puts are "juiced up" with IV, they will still be generally far less juiced up than say puts on a high-beta stock?
  4. Its all relative, as you said indexes and ETF's trade at lower volatilities but the skew in them can be greater or less then some individuals