marcekowalski 0 Report post Posted February 6, 2018 (edited) As we have just seen, buying calls and puts in a low volatility environment presents an opportunity for extrinsic value appreciation as vol increases. I sold to close all my SPY straddles today which, in addition to being deep in the money, were up sharply due to the VIX spike. What strategies are similar in profit versus spot price characteristics to straddles that are safe to open in an elevated volatility market like we have now? Edited February 6, 2018 by marcekowalski Share this post Link to post Share on other sites
Yowster 7,995 Report post Posted February 6, 2018 3 hours ago, marcekowalski said: As we have just seen, buying calls and puts in a low volatility environment presents an opportunity for extrinsic value appreciation as vol increases. I sold to close all my SPY straddles today which, in addition to being deep in the money, were up sharply due to the VIX spike. What strategies are similar in profit versus spot price characteristics to straddles that are safe to open in an elevated volatility market like we have now? @marcekowalski The problem is there is not a great trade setup that profits from falling IV, but can also tolerate significant price movement. The closest is probably an iron condor - elevated IV allows you to sell farther OTM wings and still collect a decent credit. If IV falls, it will really help the trade. However, if stock price move is really big it could still be a loser. Share this post Link to post Share on other sites
samico 8 Report post Posted February 6, 2018 But then how to act in periods like 2018 year? Vix was high from may and beyond right? Buying straddles isnt a good thing? Share this post Link to post Share on other sites
samico 8 Report post Posted February 6, 2018 Sorry i meant 2008. Share this post Link to post Share on other sites
Yowster 7,995 Report post Posted February 6, 2018 @samicoThere is a difference between a spike where a subsequent pullback is likely compared to a extended period of high volatility where you establish a new average VIX level. The biggest problem for straddles is falling IV. 1 samico reacted to this Share this post Link to post Share on other sites
jrod 8 Report post Posted February 6, 2018 What about an unbalanced put butterfly (1/3/2) on VXX? Shift all the risk far to the downside. Put the trade on for a small credit and have an advantage with IV falling as VXX comes in? Share this post Link to post Share on other sites
Yowster 7,995 Report post Posted February 7, 2018 23 minutes ago, jrod said: What about an unbalanced put butterfly (1/3/2) on VXX? Shift all the risk far to the downside. Put the trade on for a small credit and have an advantage with IV falling as VXX comes in? @jrodThe problem is that this could become a "thread the needle' trade where the VXX has to fall - but not too far. Big gaps in VXX can happen overnight, so it would be easy to envision a scenario where VXX gaps down below your put strikes. That's a general thought - not sure what expiration and what strikes you are talking about specifically. I guess it would be less risk if you used farther OTM strikes. Share this post Link to post Share on other sites
jrod 8 Report post Posted February 7, 2018 Yes, I'd look at something like 44/38/32. And yes a big gap down could hurt, but the vol would likely begin to collapse, helping the trade. Not a big hitter, but takes advantage of falling vol with risk limited to the downside and potential for a solid profit. Just my 2 cents. Share this post Link to post Share on other sites
jrod 8 Report post Posted February 7, 2018 Probably 23Feb expiration, but could be adjusted according to one's trade premise. Share this post Link to post Share on other sites
