Prediction of future stock movement?

Discussion in 'Options' started by daytrader85, May 29, 2013.

  1. So, I'm currently long the July SPY 146/156/166 Put Butterfly Spread. The spread is currently trading at 2.18/2.23

    I was looking at the August 146/156/166 Put Butterfly (same strikes as the July Fly but different expiration) and it was trading at 1.99/2.06.

    Does this lower Bid/Ask on the back month mean that we are expecting higher prices for the underlying, or is it just that the volatility on the front month options are just higher, or both?
     
  2. If the IV were the same for both July and August then the price for July options on the same strike price would be less due to theta decay.

    Since July is higher priced clearly IV is higher in July than August. This means the market is predicting a large move between now and July expiry.
     
  3. This happens because there Is a greater chance the fly will expire out of the money by August vs July.