Quote from candeo:
One last question, from anyone here who can help: I thought back month were more affected by IV. In fact Vega was much higher on June than on Feb. I think it was 7 or 8 yesterday. Then why is it that the Feb's are the ones that got crushed more?
This is an interesting point of discussion - even though vegas are higher on rear months, in Interactivebrokers' option trader, it shows IV has much higher in the front month.
so makes it kind of difficult to figure out whats going on.
For what its worth, your short vol spread works best in big point drop or a much bigger gain. If you noticed on the bidu straddle, I sold the Mar 120 and bot Feb 120. Profit on those 5 spreads was $200/spread. Very nice. Of course I got a nice 12% move on the stock. Perhaps on these IV crush situations it might work to do both the short front month straddle, long rear month strangle, and your inverse calendar trade (in this case, long 120 front/short 120 rear) in a more equal distribution. It seems the iron butterfly component of this trade (long strangle same month as short straddle) was its weakness.
Having the hedged strangle in the rear month performed much better. (as you can see, the wider 100/135 strangle almost entirely helds its value with that big move, while the 105/125 in the same month broke down). The long 105 Feb put performed a bit worse than the long 100 Mar, and both provided approx. equal hedge. The 100 Mar was only slightly more expensive than the Feb, and provided a much more flexible hedge (letting me carry it over as an outright in the following month if I so chose).
Very happy with how the day ended. I acquired some 105/100 Mar calls mid-day, and closed out my entire short put position end of day, so no pin risk exists. My net delta exposure is similar, but for at least tommorow I'm entirely hedged (remember I still own a ton of 100 and 105 puts). I'll reduce my overweight long call position in a few days, if not tommorow, depending on the movement. I'm essentially straddled at 102 for March, at bargain basement prices (post earnings IV crush). I don't like being long this much vol and theta for long ...
All would've been much easier if we just opened at 115. But thats how the game rolls. The position will be net profitable now with even a slight move up (to 107/108 or so) or a large move down. Preferrably, a move to 115 first, and a crash to 95 by end of day would be nice.
