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If there's zero volume in a strike, the market makers make their markets in that strike based on the IV of its "heavily traded brothers." But the IV in those "brothers" is set by supply and demand. This should be obvious. Imagine a day when IBM stock doesn't move all day. On this day the...

Market makers do not determine IV surfaces. Skews are purely determined by supply and demand. Market makers just serve as "shock absorbers," providing liquidity. But their bids and offers rise in response to public buying, and drop in response to public selling. How could it be otherwise?

This sounds very logical but - and this is just my experience - this kind of linear logic will get you nowhere in the markets. It just doesn't work that way. Maestro's "poetic" approach - where money and human herds move in ways similar to a school of startled minnows - is a more fruitful...

This is not about watching implied volatility behavior by strike? Then I'm baffled too.

Perhaps Maestro is talking about in essence a refinement of put/call volume or volume by strike - using implied volatility instead of volume. The weakness in put/call ratios or any indicator using option volume is this: there is a general assumption that all option volume is driven by buyers...

Only if the underlying moved in the same direction every day for 20 days straight - unlikely to say the least. Assuming that some days the underlying would be up and some days down, you would need much more than an average of 10 points per day average movement.

As has been pointed out, IV is unlikely to rise if the underlying just sits there. To answer your question anyway - ATM options increase in price approximately proportionally to an increase in IV. In other words, if ATM IV doubles, the price of the ATM options will approximately double too...

And crude futures have $.50 increments, and had such increments even when crude was over $100. I guess if you started with equity options you're used to it. But coming from futures options, I too find the paucity of strikes in equity options to be very frustrating.

Yes yes yes. Good perspective. Keep going back to what separates the expert marksman from the delusional beginner and that should continue to provide useful insights to you. Long before I began trading, when I was still a teenager, I had an eye-opening experience that provided me with a...

This is a misunderstanding. Whether or not a spread benefits from a drop in implied volatility depends on where the underlying is at the time. If the underlying is closer to the strike you are long, you are overall long vega. If the underlying is closer to the strike you are short, you are...

Good point. Truth is, it may even be wider than you could leg it for yourself. This system is a good idea and may really work in the future, but for now it's not really ready for prime time. Way too thinly traded. To execute spreads in futures options, in most cases your best bet is really...

There are two ways that trading software handles spread quotes on futures options - depending on the software. Method 1 - Certain spreads are supported by the exchange. These usually include the most common spreads. Spreads are bid and offered as spreads. Some software will support method...

I hear a guy in NY named Madoff made a fortune doing this.

Makes sense; I guess there has to be some reason you can't just buy the ETF, short a far back month of crude, and watch the $$$ roll in. Teun - do you know if the expected effect of the contango on the future price of USO is generally agreed upon to a fairly precise extent? Or, since ETFs...

This seems to be a very valid point and in fact I've been wondering about this and how it affects the ETFs. Common sense would seem to indicate ETFs hedge using forward contracts which, as you say, are historically expensive relative to spot. But looking at the ratio of USO and the front...

Raw materials, agricultural commodities and energy have also been beaten down mightily - you could look at ETFs such as DBA, USO, etc.

You know, I was just wondering about atticus myself. It's been a long time since he posted. I hope he comes back - he definitely livens things up around here and, as you say, provides a good challenge to my cryptographic chops. As for the charts showing the negative spx/vix correlation -...

I never said back-month IV moves AS MUCH as front month IV. Only that it follows the same pattern. If you don't see it, then I guess you don't. I feel more than confident in my own observations in that regard, and in my understanding of the ironclad relationship between the buying of puts...

Careful Mary - options on VIX are very poorly understood by most. For example, answer this question: Today the VIX closed at 51. If you had bought an April 50 put on the close, would that put have been in the money or out of the money? If you answered "OTM," then BZZZZ - better keep your...

I've looked at those options and, predictably, they follow the same pattern as the front month options, with great precision. Every strike trades at an IV higher than the strike below, and lower than the strike above. As a result, it's certain that every time the underlying goes up, ATM IV...