I saw what I think is an opportunity and I made a trade (SPY). (It was a calendar and I know I'm only allowed to trade verticals, but hey...). Maybe this belongs in a trade journal, but I figure that many of you would enjoy telling me how my premise was flawed, and thus benefit the common good.
Below is a plot of SPY ATM IV for the last 20 days or so. DTE on the Y axis, date on the x axis. red=high, blue=low. "Typically" there is some decent slope in the line. In other words, 100 DTE = red, 1 DTE = blue. In the last couple days, however, the curve is very flat (one color across all DTE).
So I went long a Jan 21 2022 ATM call (80 DTE, vega 0.86), and short a Nov 19 2021 ATM call (17 DTE, vega 0.40) for a $7.30 debit. In the next week or so, I'm betting that the curve will steepen. If the IV curve stays flat but spikes up, I am covered because I'm (heavily) long vega. It's got good theta decay if IV does nothing.
Looks pretty safe to a +/-1 SD move over the life of the short call.
Below is a plot of SPY ATM IV for the last 20 days or so. DTE on the Y axis, date on the x axis. red=high, blue=low. "Typically" there is some decent slope in the line. In other words, 100 DTE = red, 1 DTE = blue. In the last couple days, however, the curve is very flat (one color across all DTE).
So I went long a Jan 21 2022 ATM call (80 DTE, vega 0.86), and short a Nov 19 2021 ATM call (17 DTE, vega 0.40) for a $7.30 debit. In the next week or so, I'm betting that the curve will steepen. If the IV curve stays flat but spikes up, I am covered because I'm (heavily) long vega. It's got good theta decay if IV does nothing.
Looks pretty safe to a +/-1 SD move over the life of the short call.
