VIX trade for 8/18 exp

Discussion in 'Options' started by atticus, Aug 10, 2011.

  1. Long the VIX Aug 30/40/50 fly from 2.60. I am in from a 2.60 risk. Worth 5.00 by Monday's close. This can be traded to 10% of your portfolio.
  2. Here's the mkt in the natural. It was 2.50 mid a second ago. I own both, but would work the iron over the natural.

  3. Typo in thread title. Ops go OTB on the 16th.
  4. 2.60 mid.... better grab it while it's available under 3 handles.
  5. Currently 3.40 mid.
  6. I was wondering why you thought a butterfly was better when the upper callspread was only $1. I like the idea. I bought the August 30 calls.
  7. Two factors in opposition. The convergence and a likely quick-drop in the vol-line if we muster any counter-trend rally in SPX. There is more to it, but I have a forecast of 37 on spot at expiration, so felt confident in the fly, even on the flip in delta made palatable by the 900bp discount.

    I would be very careful in calls here. You may want to vert or fly it off.
  8. I see. I actually saw it differently (for my specific needs).

    I saw the calls as a cheap hedge to my upside SPX call delta that I am long. I figure that if we sell off to 1000 from here, I will lose about 3% on my calls less spot-vol correlation effects and these calls should triple in value. This is roughly equal.

    If we rip and VIX settles below 30 I will lose the calls, but make 3%+ on my call delta less the spot-vol correlation and gamma. The 3% is higher than the amount I spent on the VIX options.

    If we muddle along for the next few days, the calls will "drift" to something (hopefully 40+) and my SPX calls will do nothing.

    So it seems like a good hedge for the next few days.

    Why specifically the 30 line (it was more or less random and because you suggested it)

    edit - clarification points: I paid in premium for the VIX options about 1% of my delta. In the downside scenario I figured the VIX would go to 50 (which is a number I honestly made up).
  9. Out half at 3.30.
  10. If it is going to 5, what made you sell at 3.30 ?.
    #10     Aug 11, 2011