SPY IV question.

Discussion in 'Options' started by noob_trad3r, Jun 29, 2010.

  1. Why is IV much higher on a July put for SPY VS the AUG put for SPY?

    pretty big difference.

    Sold 25 contracts for the July 103 put for 1.76 dollars

    sold a bit too cheap.

    Oh well, if I get put stock I will sell covered calls for August.
  2. donnap


    Well, the option market prices volatilty. There is a certain reversion to the mean priced in over time. You can see that farther out puts have an even lower IV.

    To put it another way - often, price action begets more price action. With todays big drop, we may soon see more big drops or some fierce rallies. The front month IV is the most sensitve to that expectation.

    We may see further volatility soon, but it's not as likely that over time this volatility will persist.

    During periods of low volatility the front month may be lower as the market expects volatility to return to higher levels over time.
  3. Will the strike price of those calls be above or far below 103? :confused:
  4. Above 103

    I sold too cheap, should have waited a little later but no big deal. I do not mind owning SPY shares. I never sell puts on something I do not want to own.
  5. I sold 20 covered calls on my existing SPY shares for 4.30 These are August calls it got filled in two chunks, 12 and 8 contracts for total of 20.

    cost basis on the stock I am writing the CC's on were 98.70 due to prior calls I sold.

    so now I have 25 short puts (Cash secured) 103 july
    and now 20 covered calls as well on existing SPY holding 103 aug
  6. I like the way things are going. 10 more days.

    lets see if SPY floats around 101-106 :)
  7. Another question. Why is IV higher on the more OTM puts than the ones closer to ATM?

    Is it because more people like to buy the OTM ones for some reason? Why would someone want such an OTM option many strikes down.