VRSN - Taking a Stand on Vol with Spiking VIX

Discussion in 'Options' started by livevol_ophir, May 20, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    VRSN is trading 27.30 down 2.5% with IV30&#8482 up 7.3%.

    Note IV30&#8482 in the VIX as well (i.e. the vol of the vol) is up 36.7 points or 28.5%.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/S_VNIpMNWKI/AAAAAAAACeA/gZRSpvGkyXA/s1600/vrsn_summary.gif">

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/S_VQ6KBlkVI/AAAAAAAACe4/gm8m1MuFXSs/s1600/vix_summary_3.gif">

    The company has traded over 30,000 options in the first hour on total daily average option volume of just 5,689. The largest trade has been a vol sale (strangle) in Sep. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/05/vrsn.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/05/vrsn.html">in the article</a>). illustrates that both the puts and the calls are mostly opening (compare OI to trade size).

    The strangle sale was @ $3.85 ($2.85 in the puts and $1.00 in the calls) for a total credit of 13,000 x 100 x $3.85 = $5,005,000. Max gain at expo. is if the stock is in between the two strikes [28,31]. Breakeven is $24.15 and $34.85.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/05/vrsn.html">in the article</a>) illustrates the vols that were sold in comparison to the rest of the chain.

    More importantly however, you can see the vol (IV30&#8482) in VRSN recently. The chart (<a href="http://livevol.blogspot.com/2010/05/vrsn.html">in the article</a>) looks almost identical in shape to a huge number of other stocks.

    Note the elevated (spiking really) vol. This trade can be a winner well ahead of Sep expo. if vol dips in the summer months (particularly if it dips in August so the strangle wins to decay and vega).

    This is a great example of not getting paralyzed by the market. It's going down, vol is spiking. The VIX is acting like a bio-tech in terms of vol (see above). If you're a vol seller, then be a seller. If you think vol is going higher, then bet that way.

    Naked strangles are more pro/institution type trades (like the one above) - but you can sell or buy vol in spreads to manage max loss outcomes. The same for deltas.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. Is the VIX ahead of itself? It's above it's extreme level from May 6th while the index hasn't exceed the same similar level. :confused: :eek: :(
  3. livevol_ophir

    livevol_ophir ET Sponsor

    The VIX has tripled in a month, that's sort of the "danger" when it gets to the 15 level in this world, where we have... well, where we have this...

    Will it triple again from here? My guess is no... but the vol indicates a better probability of that happening now then back when it was 15... Index vols are weird since there is no takeover, fraud or bankruptcy risk (i.e. no company specific risk).

    It's possible the vix goes higher... 167 vol though... that's high for an index that's already moved 200%. But then again... it moved 200% so who knows...