VIX Graph. September 4, 2009

2009-09-04_1825vix0904

VIX has been holding steady recently, with an occasion blip upwards. Now that summer is almost over, it will be interesting to see what lies ahead. We all remember the extreme volatility of 2008.

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5 Responses to VIX Graph. September 4, 2009

  1. The Sound Center 09/04/2009 at 10:33 PM #

    Yes indeed – and some of us would like to ride that volatility again.

  2. Dave 09/05/2009 at 12:21 PM #

    Mark, would you give me your opinion of this RUT trade I put on Friday? If this isn’t the proper forum I’ll understand (just erase the post).
    Conceptually I feel like the market sits at a major pivot ready to break hard either way. My gut says UP while every strand of logical thread in the universe screams DOWN. Or of course we may just sit here a long while too. Either way– guessing direction has never been overly kind to me on a consistent basis. So (fictional size and easy arithmetic) I:
    Sold 2 Oct 610/ 620 call spreads 1.90 x 200= $380 credit
    Bought 1 Sept 570 call for 9.30 x 100= $930 debt
    If RUT sits exactly here Sept 18th the risk graph says $823 max loss. Break even is about 580 (less than a 2% move higher) and profit grows sharply with any additional move up… which would be great… BUT, what I’m REALLY hoping for is a quick drop next week to sell a volatility enhanced put spread on, turning this trade into a very juicy iron condor (keeping that 570 call for another day?)
    Am I building a rocketship? Is my daytrader mentality trying to muck up the beauty of a market neutral IC?
    Thanks, Dave

  3. Mark Wolfinger 09/05/2009 at 12:48 PM #

    Dave,
    I don’t mind replying – but I cannot give specific advice. Not that I don’t have opinions, but I am not a licensed advisor and my information is interned to be general – helping you learn to make all decisions for yourself.
    Yes LOGIC screams ‘bear’ – but not everyone sees it that way and logic does not count over the short term.
    Comments:
    1) This 3-way spread is ‘long’ by any measure. Thus, it’s appropriate ONLY as an immediate bullish play.
    2) This spread has unlimited profits to the upside. So much so that you have room to sell more call spreads, reduce your cash outlay, and still have unlimited profits to the upside.
    That’s going with your gut.
    3) But owning Sep options with so little time remaining is a big risk – in return for that positive gamma.
    I’ve been buying Oct calls against my Oct call spreads (same with puts), using a 1 x 3 or 1 x 4 ratio. But, my gut is not telling me to be long, as your gut is telling you. [My current portfolio does better with a rally – something very unusual for me].
    4) Yes, you can use a downwards move to sell put spreads against your call spreads – but your downside will be unprotected.
    5) Fine idea for a bullish play. Go for it.
    But, if you prefer to be ‘safer’ with less reward, look for a similar play with puts. But rather than be naked short the put spreads, you can do the same strategy 1 x 6 (or some other ratio). That brings in less cash from the puts, but provides relief in a black swan situation.
    The put trades: Do you insure or not? That is the decision
    What I don’t get: You are taking a bullish play, but are hoping for a down move. I guess that means no matter what happens, you will be pleased. But this is a very bullish play that can become a problem if the Sep 570 goes away.
    Bottom line, you have a big potential collect to an up move, currently, a loss to the downside (but the opportunity to sell put spreads) – and severe theta risk.

  4. Dave 09/05/2009 at 1:12 PM #

    Mark, I’d never ask you a question about a trade unless it had already been made.
    …not that I wouldn’t like to, believe me 🙂
    What I’m really trying to accomplish here is to be non-directional; selling a “super juiced up” iron condor that doesn’t explode too bad if things go wrong while in the making. I’ve tried other ways of “trading” into them… which of course boils down to guessing direction/ and spoiling the whole idea of mkt neutral…
    I appreciate the response and I think it’s starting to gel… either you are or you aren’t (mkt neutral)… Thank you!

  5. Mark Wolfinger 09/05/2009 at 1:49 PM #

    You are long right now.
    You can hold that, or fix that. Your choice.
    But holding a long position and ‘rooting for’ a down move just doesn’t feel right to me. The truth is that Mr. Market does not care what we are rooting for.
    Legging into iron condors is fine. But I want you to pay attention to this: Find the call spread you would sell if opening a new iron condor Monday. If the market heads higher, see just how slowly, if at all, that spread widens. You may get the up move, but is the monetary reward there? Pay attention to that and think about what you have to gain by legging into an IC.