Selling puts on ETFs

Discussion in 'Options' started by nycabs, May 6, 2009.

  1. nycabs


    Do you guys think that some of the OTM put options on commodities ETFs (e.g. USO) are overvalued?

    It is a norm to observe pronounced volatility skew on stock put options (more OTM = higher IV) due to demand for protection against black swan fat-tail events. But for commodities ETF??? if anything with commodities, the risk-aversion of most trader is against the upside risk.

    Selling OTM puts on commodities seemed to provide a decent risk/reward proposition. Am I missing something here?
  2. You should stick to writing puts on something you are willing to own but at a lower price and would like to be compensated for waiting.

    Why not write puts on SPY instead? pick a point you feel comfortable taking a position in SPY and write puts on that.
  3. dcvtss


    That's interesting, which commodities ETF's are you observing skew on?
  4. nycabs


    NYSE: USO.

    Let's take June put chain:

    31 strike: Imp Vol = 45.76
    30 strike: Imp Vol = 47.08
    29 strike: Imp Vol = 47.73
    28 strike: Imp Vol = 48.64
    27 strike: Imp Vol = 50.10
    26 strike: Imp Vol = 50.52

    Imp Vol provided by optionxpress. The skew is quite pronounced.