Spy Iv

Discussion in 'Options' started by BeatingtheSP500, Sep 18, 2008.

  1. Wow. With the SPY at $117.00 at 1:44 PM, a 117 call expiring TOMORROW is $1.91. Wow. That's some serious IV. btw, had to sell a couple puts (to close) when the VIX hit 42.

    edit: The SPY goes ex-dividend tomorrow so another .70 will be shaved off the SPY price. Even more IV. $1.91 for a 117 call with the stock at $116.30 (effectively)
  2. Here's a perfect example of perhaps the futility of trying to figure if options are expensive.
    The previous post indicated a very expensive SPY call (broad market) at $1.91.
    Closes a couple hours later for $3.40.
    The 'expensiveness' said that SOMETHING was going to happen.
  3. How do you figure if an option is rather expensive or not?

    can you please explain to the option illiterates!
  4. With the following knowns:

    SPY share price effectively at $116.30
    1 day to expiration
    The 117 call was $1.91

    For a broad market index thats huge IV, perhaps 80-90%? In a broad sense that would indicate a VIX of around the same figure (80-90).

    Most would conclude that the call was expensive. My point is that there's really no way to tell if an option is expensive and it's almost pointless to focus on it.
    On the other side of the coin, some options appear cheap, but are they really?

    Turns out the call was expensive for a reason.
  5. The put was just as costly. What was the reason for that?

    IV was very high because big volatility can be expected every morning these days.

  6. If one can't know whether an option is expensive or not, it would be hard to say if it's cheap. Do you ?

    It's Okay, I'm drunk too.
  7. dude what are you talking about. Are you asleep today or something? It's pretty obvious why the iv is so high. Expensiveness is relative, i wouldnt buy into that iv but you must also be suicidal to write that call as well.
  8. My point is this: Someone who may be dipping their toe into option trading (perhaps after successfully writing a few covered calls), could be mightily tempted to write that naked call, as it appears to be a $20 bill in street.

    However, when you pick up that $20, a hand grabs you and pulls you into the sewer.

    The 'expensiveness' was the siren luring you to your demise.

    An IV of 80-90% for the broad market index (SPX) is not that obvious.
  9. Noone would think it's a free "$20 bill" for an atm call today. Maybe if you are talking about a far otm call, then someone new to option would be tempted to write it. At which point, they will get smoked this afternoon and quit option or going back to the drawing board.
  10. Well apparently many people thought it was easy money. I could be wrong but it looks like there were 108,000 contracts traded. Lowest price was .72 (!) The 120 strike traded as low as .22 yesterday - I wonder where thats going today (Fri) Quite a few sellers likely thought it was the equivalent of $20 in street, with that kind of volume.
    If you are a seller of calls, especially the teenies, you have met your black swan event. As I right this China +9%, FTSE +7 %, UK financial stocks +35%) If you are short financials, and highly levered, this is your black swan event.
    #10     Sep 19, 2008