OCs Implied Volatility Trading Journal

Hi all.

I've been an ET reader for the last few months and this is my first post.

I've been a full-time equities trader for several years and I'm trying to expand my strategies to include options IV trading. I sure could use some advice and would also appreicate input from you seasoned options veterans.

My "entry" trade is the ISRG April 100 straddle. I'm looking for a January or Feb IV expansion (based on Jan earnings). I've done my projections based on ISRG's historical IV (40 to 70) and assessed the position on the TOS analyzer. Unless some aberrant IV drop from historicals, I feel pretty confident in the trade (acceptable Theta and high Vega). Thoughts??

Next, can anyone point me in the direction of a scanning tool to use to find extremely low or high relative IVs? I think there's one one the CBOE Website. Any input would be appreciated.

Many thanks all and I look forward to being a contributor to this and other ET journals.

Bruce:)
 
The only thing to be aware of is that the biggest IV push will come during the month when earnings are announced, which might be JAN or FEB. However APR will see some vol inrease if vols increase across the board. So your straddle will do well with a large move and a general IV increase, but not necessarily on the IV spike which might only occur in JAN/FEB months.

The reason I am doing my diagonal trades is to capture any IV increase in addition to a move in either direction. So just be aware of what kind of IV increase you will get in APRIL.

The good thing is that you have given yourself plenty of time to be right...

Quote from pitch:

Hi all.

I've been an ET reader for the last few months and this is my first post.

I've been a full-time equities trader for several years and I'm trying to expand my strategies to include options IV trading. I sure could use some advice and would also appreicate input from you seasoned options veterans.

My "entry" trade is the ISRG April 100 straddle. I'm looking for a January or Feb IV expansion (based on Jan earnings). I've done my projections based on ISRG's historical IV (40 to 70) and assessed the position on the TOS analyzer. Unless some aberrant IV drop from historicals, I feel pretty confident in the trade (acceptable Theta and high Vega). Thoughts??

Next, can anyone point me in the direction of a scanning tool to use to find extremely low or high relative IVs? I think there's one one the CBOE Website. Any input would be appreciated.

Many thanks all and I look forward to being a contributor to this and other ET journals.

Bruce:)
More...
 
Quote from optioncoach:

The only thing to be aware of is that the biggest IV push will come during the month when earnings are announced, which might be JAN or FEB. However APR will see some vol inrease if vols increase across the board. So your straddle will do well with a large move and a general IV increase, but not necessarily on the IV spike which might only occur in JAN/FEB months.

The reason I am doing my diagonal trades is to capture any IV increase in addition to a move in either direction. So just be aware of what kind of IV increase you will get in APRIL.

The good thing is that you have given yourself plenty of time to be right...
More...

Hi Coach.

Pardon my ignorance, but in my origniation of the trade I was essentially looking at the potential IV spike associated with Jan earnings w/o much attention to April IV. Why wouldn't the position do well with a Jan/Feb IV spike?
 
If earnings are going to be released during the FEB expiration month, then the FEB options or the current month options at the time will have the IV spike since they will be the most ucrrnet options during the news event. So those front-month options will have the IV spike while late months, although they could see an increase an vols, will not spike. The current month options always have the greater trading and volatiliy then later months.

So for exmaple, in my positions I am looking to IV increases and hopefully can roll my shorts into the spike month to collect a lot of premium beofre a big move but I do not expect my longs to have the real spike. I am getting in now as opposed to waitin so that I can lock in my position with vols low and just let it sit and give it time. Also if the stock breaks out anytime before then I still can have a nice profit.

So when modeling you have to be aware that a spike occurs but not in every month. Back months can increase 5 or 10 points but will not go from 40 to 70 unless another event raises vols across the boards dramatically (look at NFLD for example).

Quote from pitch:

Hi Coach.

Pardon my ignorance, but in my origniation of the trade I was essentially looking at the potential IV spike associated with Jan earnings w/o much attention to April IV. Why wouldn't the position do well with a Jan/Feb IV spike?
More...
 
If you are fully expecting an IV spike during Jan or Feb, then you should long those straddle for those contract months. However, you will be subject to -theta and taking on delta risk as well. That's why Phil sells some near month contracts to take in premium to finance his APR contracts while he waits for the IV spike.

Quote from pitch:

Hi Coach.

Pardon my ignorance, but in my origniation of the trade I was essentially looking at the potential IV spike associated with Jan earnings w/o much attention to April IV. Why wouldn't the position do well with a Jan/Feb IV spike?
More...
 
Thanks Coach and RCMLLC. I appreciate the feedback.

I understand that a calendar is a long vol situation. Noting I have a straddle, my thought was to buy plently of time for either a price movement or vol movement. If the vol movement transpired during the next earnings period (w/ little or no movement in the underlying - I know the April options won't move as much as the current month when earnings are announced) and there was a nice profit, I would consider closing the trade since I couldn't get two earnings periods by April. It seems to me Theta would begin to hurt me after the vol crush subsequent to Jan/Feb earnings, which would be another consideration to close the trade.

Guys, am I on the right track with the straddle as it relates to timing?
 
Hi.

I'm contemplating a trade to exploit AAPL's low relative IV. I'm looking at the Dec/Apr 85C. With IV at 30 on the long and 36 on the short and an earnings release at the first of the year, I think I'm positioned okay. Also, I can sell add'l premium for the Jan and/or Feb earnings release.

Here are my Greeks:

D 169
G -24
V 12
T 120

Any experienced input relating to this potential trade would be greatly appreciated.

Many thanks.
 
WIth a long straddle going out in time it always makes sense to place the straddle at least one expiration period past the target date (i.e. you are using April for a January/February event) to negate as much as possible the effects of time decay. If you chose a JAN straddle it would cost less but if the stock went nowhere theta would eat it up alive. At least with April you will suffer minor theta and have more time for the position to move in your favor or make an adjustment. So for that reason, April is a good choice.

Quote from pitch:

Thanks Coach and RCMLLC. I appreciate the feedback.

I understand that a calendar is a long vol situation. Noting I have a straddle, my thought was to buy plently of time for either a price movement or vol movement. If the vol movement transpired during the next earnings period (w/ little or no movement in the underlying - I know the April options won't move as much as the current month when earnings are announced) and there was a nice profit, I would consider closing the trade since I couldn't get two earnings periods by April. It seems to me Theta would begin to hurt me after the vol crush subsequent to Jan/Feb earnings, which would be another consideration to close the trade.

Guys, am I on the right track with the straddle as it relates to timing?
More...
 
OC , you may reconsider your put/call ratio for back month. It should be more puts. Vols action aside , if stock goes down 10% ( compare with going up) , your long premium getting tanked because of lower stock nominal at front month exp.
Will you do delta adjustments for your longs at DEC exp and will you sell JAN (if not reporting month) then ?
 
WHich position are you talking about?

I always make sure the position is heavy Vega no matter the ratio.

If JAN get inflated I certainly will sell JANs and if I have to FEB and MAR depending on the long expiration date to keep taking in premium.

I will not add stock unless we get a large move and I can lock in something with the stock to flatten out but I would rather do it with options.


Quote from IV_Trader:

OC , you may reconsider your put/call ratio for back month. It should be more puts. Vols action aside , if stock goes down 10% ( compare with going up) , your long premium getting tanked because of lower stock nominal at front month exp.
Will you do delta adjustments for your longs at DEC exp and will you sell JAN (if not reporting month) then ?
More...
 
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