Trading Weekly IV Increase Over Monthly

[tjlocke99]

Could some of the senior members and/or Kim comment on this idea?

Does the IV (when it moves at all) on weeklies always outpace or at least stay even with the monthlies on the earnings trades?

Could you then do the opposite of a calendar and long the weeklies and short the monthlies on an earnings trade?

Take this hypothetical example:

AAPL underlying @ 615

let's say its 19 July and the 27 July AAPL weekly is released. Let's say we have this made up pricing:

1. 27 July AAPL 615 Call @ $10.00

2. 27 July AAPL 615 Put @ $10.00

3. 17 Aug AAPL 615 Call @ $20.00

4. 17 Aug AAPL 615 Put @ $20.00

You would do this:

long qty 2 of #1

long qty 2 of #2 (creating a straddle)

short qty 1 of #3

short qty 1 of #4

I am sure the theta will kill you if you don't get an IV increase, so do this on a stock like AAPL probably would not work because of the high stock price (unless your portfolio is huge).

Any thoughts on a trade that could take advantage of the greater IV increase in the weeklies?

Thanks!

[Rogers]

my 2 cents at first glance.. Why would you want to be short either weekly or monthly if you are figuring that IV is going to increase?

[Kim]

One potential problem here is that since you are short further expiration, those options will be considered naked, with huge margin requirements.

[tjlocke99]

my 2 cents at first glance.. Why would you want to be short either weekly or monthly if you are figuring that IV is going to increase?

The thought would be the weekly IV outpacing the monthly IV. If the monthlies are treated as naked though then its a dead end.

There certainly seem to be better strategies. Thank you very much for your feedback!

R