With volatility soaring above 50 in the VIX, what is the best way to play the volatility if a trader believes that the market will reverse back up in the next day or two using futures and options on the S&P? Go long the futures and sell otm calls? Just sell puts that are otm? What else might be a better strategy?
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Best Way to Play the Volatility using Options and Futures in ES and SPY
- Thread starter timetotrade
- Start date
If you truly expect the market to reverse up then you may as well just put on a call spread or a call outright. If premium is an issue then put on a wide call fly with a decent range until you touch your shorts.
I don't recommend selling options based on your expectations, because any option sale is essentially a bet against movement, and you indicated you had faith in just the opposite.
Instead of selling an OTM call I would recommend buying a 20 delta(ish) put hedged. Any hedged option is essentially a straddle, and movement in either direction is exacerbated by your gamma (even though you don't get too much gamma when options are on this high a vol).
If you really wanted to bottom-fish, pick a strike and buy a put spread hedged with buying futures/SPYs. If we fall through your long put you can sell it out at a gain while holding onto the short leg of your spread and essentially legging into a long position while collecting decay.
Good luck, I'd like to hear back about your implementation.
I don't recommend selling options based on your expectations, because any option sale is essentially a bet against movement, and you indicated you had faith in just the opposite.
Instead of selling an OTM call I would recommend buying a 20 delta(ish) put hedged. Any hedged option is essentially a straddle, and movement in either direction is exacerbated by your gamma (even though you don't get too much gamma when options are on this high a vol).
If you really wanted to bottom-fish, pick a strike and buy a put spread hedged with buying futures/SPYs. If we fall through your long put you can sell it out at a gain while holding onto the short leg of your spread and essentially legging into a long position while collecting decay.
Good luck, I'd like to hear back about your implementation.
Quote from what_hedge:
If you truly expect the market to reverse up then you may as well just put on a call spread or a call outright. If premium is an issue then put on a wide call fly with a decent range until you touch your shorts.
I don't recommend selling options based on your expectations, because any option sale is essentially a bet against movement, and you indicated you had faith in just the opposite.
Instead of selling an OTM call I would recommend buying a 20 delta(ish) put hedged. Any hedged option is essentially a straddle, and movement in either direction is exacerbated by your gamma (even though you don't get too much gamma when options are on this high a vol).
If you really wanted to bottom-fish, pick a strike and buy a put spread hedged with buying futures/SPYs. If we fall through your long put you can sell it out at a gain while holding onto the short leg of your spread and essentially legging into a long position while collecting decay.
Good luck, I'd like to hear back about your implementation.
Hi What Hedge,
Just curious, would you care to share what you feel is the best approach at this juncture, considering the current market conditions.
Best Regards
Johno