SSO - A Huge Gamble or a Huge Hedge?

Discussion in 'Options' started by livevol_ophir, Jul 13, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    SSO (Ultra S&P 500) is trading $36.21, up 2.5% with IV30&#8482 down 3.1%.

    <img src="">

    The leveraged ETF has traded over 39,000 options in the first two hours on total daily average option volume of just 23,708. All but 7,627 contracts have been puts yielding a 4:1 put:call ratio. The action, in small trades, has been over 22,000 July 35 put purchases. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The Options Tab (<a href="">in the article</a>) illustrates that the puts are mostly opening (compare OI to trade size). Note that expiration is in just five days.

    Given that expo is so near it does make me wonder if this trade is opening to hedge, or opening to gamble. I could make a good argument for both. It feels like a hedge b/c expo is so soon... But then again, it also feels like a gamble b/c expo is so soon. Hmm...

    The Skew Tab snap (<a href="">in the article</a>) illustrates the vols by strike by month.

    This is actually kind of normal skew for the leveraged ETF. July downside looks so bid because of the leveraged effect combined with expo; though it may be a bit pronounced right now.

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    We can see the amplified upswing in the market recently following an amplified down turn. Note that IV30&#8482 is just now coming down to touch HV20&#8482. You can also see the red coloring of the volume bar at the very bottom - that's the ISE sentiment indicating opening order put purchases from cust accounts.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. rew


    A certain option newsletter just recommended buying July 35 SSO puts. That newsletter has been wrong about 75% of the time in the past year. So take this trade at your peril.
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Great info; thanks!
  4. rew


    Golly, the gamble payed off for those that played it (not me), thanks to the stock market tanking today. The puts were bought Tuesday for 0.25 - 0.40 and in the last trading hour on expiration Friday sold for 0.50 - 0.70. At the Thursday close they were worth 0.07.

    Not a trade for people with high blood pressure.
  5. livevol_ophir

    livevol_ophir ET Sponsor

    I know someone that bot them for < $0.10 and sold today on close. Wasn't me...