Is the volatility over for now?

HereGoesNothing · Sep 9, 2019

Hello all,

I am curious to see what experienced option traders are thinking right now regarding their outlook for US equity volatility over the next 30-60 days, based on recent IV changes and stock trading volume. The past few days sucked to be long SPX / RUT gamma but I am holding on. The bleed is starting to suck though. My entry points are roughly average 30 day realized volatility (15% SPX and 18.5% RUT) but I have Sep options.

In case it’s not obvious, I am relatively new to the practice of volatility trading. I’ve read the vanilla half of “Dynamic Hedging”, and I’ve read “Volatility Trading” but books only teach you just enough to lose all your money in a more convoluted way.

cdcaveman · Sep 9, 2019

Reduce your size if you don't know what your doing...

gaussian · Sep 9, 2019

Volatility is in a lull because we are in the cycle just before the orange man shitposts on Twitter about China, the fed, or both. Volatility on the 10 year is around the 75th percentile. Some volatility in gold too. I’m betting on the market just holding their firepower until Trumps next tweet.

Philo Judeaus · Sep 10, 2019

Well since the market just hit the highest vol mark one month ago I'm not sure what you mean by lull? Theres been decent movement in magnitude the entire month of August.

If you're bleeding I'm assuming you're long premo and getting hit by shadow theta the last three days. My outlook on IV a month out from today on the S&P is exactly where spot is today. Ivol is around 15.75% in the 21%percentile... I predict the $SPY will consolidate around $290 spot in the month of September.

gaussian · Sep 10, 2019

Philo Judeaus said:
Well since the market just hit the highest vol mark one month ago I'm not sure what you mean by lull?

IV on RUT: 29th percentile
IV on SPX: 18th percentile

Market indices are nearing the bottom of the IV quintiles. The market in general is hopeful that a trade deal will work with China. Bonds are falling as well (at least until the FOMC).

Volatility is extremely low in SPX and RUT right now.

Specterx · Sep 10, 2019

Not an options trader here but it's clear that the upcoming ECB and Fed announcements are, together, basically a binary event. If CBs bust out their bazookas (Fed 0.5 cut with dovish talk or 0.25 cut with ultra-dovish talk, ECB resuming QE and noises about buying equities) it will likely kick off a new low-vol bull trend. If they disappoint then many players will need to scramble to adjust positions, anxiety/fear will surge and risk premo will rise.

It's hard to imagine "Caveman" Powell and "Whatever It Takes" Draghi will do anything other than run the presses red-hot, but you never know.

Trade war isn't really a factor in the grand scheme of things as a resolution is already priced in, Trump is desperate for something to call a win, and even a superficial resolution will be enough for markets.

tommcginnis · Sep 10, 2019

gaussian said:
Volatility is extremely low in SPX and RUT right now.

SAY WHAT????
I happened upon this chart from last year... it reminded me of how rich things are.....

For clarity:
Green is VIX9DAY for three expiries, VIX thereafter.
Orange is for the 10-δ strike (0.10)
Blue is for the -10 (-0.10) strike.

The VIX itself is (was) still sitting at ~13 -- when it camps out FOR MONTHS near the single digit handle, THEN you can start bitching.
Sheeesh.

ffs1001 · Sep 10, 2019

HereGoesNothing said:
The past few days sucked to be long SPX / RUT gamma but I am holding on. The bleed is starting to suck though.

I'm curious how the long gamma is hurting you. If you are long gamma, then you must be long delta; if you are long delta, then you must be long the underlying; and both of these underlyings have risen quite a lot since last Thursday.

Were you long puts by any chance? In which case, it's not the long gamma, but the short delta that's hurting you.

gaussian · Sep 10, 2019

tommcginnis said:
SAY WHAT????
I happened upon this chart from last year... it reminded me of how rich things are.....

View attachment 208746

For clarity:
Green is VIX9DAY for three expiries, VIX thereafter.
Orange is for the 10-δ strike (0.10)
Blue is for the -10 (-0.10) strike.

The VIX itself is (was) still sitting at ~13 -- when it camps out FOR MONTHS near the single digit handle, THEN you can start bitching.
Sheeesh.

I didn't use the VIX, I used the IV of the ATM SPX straddle which according to TDA is sitting in the 15th percentile.

HereGoesNothing · Sep 11, 2019

ffs1001 said:
I'm curious how the long gamma is hurting you. If you are long gamma, then you must be long delta; if you are long delta, then you must be long the underlying; and both of these underlyings have risen quite a lot since last Thursday.

Were you long puts by any chance? In which case, it's not the long gamma, but the short delta that's hurting you.

Delta hedged straddles, so paying to be long gamma both ways but not getting any movement like everyone else. Some economic news the next three days, hoping it’s a blast!