When SPY Sells off 5% in Two Days

cdcaveman ,
good recommendation

I'm going to pull up the recommended Credit spread this weekend and see and do TorS Thinkback and see what the Credit spread would have looked like on Tuesday .... all the way up until the close today ( Friday )

Then again, if someone was in a Bear Call spread, this wouldn't be an issue lol

I'm just wondering what a BullPut spread/scenario at a Spread with a .02 OTM delta would have looked like come the close today.
With almost a 850 point drop in the Dow , surely this would have effected this Far OTM BullPut spreads.... by how much, that's what I'm curious about

Standard Deviation wise ..... does anyone know what " Level " this Hit .... 3SD ... 4 SD ?
 
samuel11 said:
By further otm strike, do you mean the highest? Because in that case, it would have been more expensive... Remember, the put spread was above spot, and i was buying it to close.
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For instance the 1900 strike puts will have a higher IV than the 1950 strike, etc, etc...so with another month till expiration a spread of the 1950/1900 won't expand as much as say an equidistant call spread would (since the further otm calls trade at lower IV to the closer ATM strikes)...that's why I figured even if the spread is ITM, it won't trade at close to the full spread value until next month's expiration week.
 
der_kommissar said:
For instance the 1900 strike puts will have a higher IV than the 1950 strike, etc, etc...so with another month till expiration a spread of the 1950/1900 won't expand as much as say an equidistant call spread would (since the further otm calls trade at lower IV to the closer ATM strikes)...that's why I figured even if the spread is ITM, it won't trade at close to the full spread value until next month's expiration week.
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Exactly. But that was not the further otm strike, it was the closest to the money...
 
I spoke out of turn when i t came to credit spreads.. as i don't trade those... Nor would i think to unless vols were very high, and even then i have other trades i would be more likely to trade...

As far as the calendar i would try to sell sept and buy oct in a small amount.. or i would sell oct and buy nov..I would go horizontal and not diagonal ... a strangle swap or a call spread or put spread would work.. Strike risk can go against you more quickly with the nearer term calender.. You are taking directional risk .. i would probably test it out by doing it in spy to stay small
 
timetotrade said:
Greetings,
I am somewhat of an option newbie. The SPY has sold off about 5% in the last two days. That is a rare occurrence and seems to happen every few years. In the past, this type of sell-off will usually get a bounce in a day or two and then might sell-off again. What are some good options strategies to use over the next couple weeks looking for the bounce? And then what might be a good strategy to use after the SPY trades higher for a couple days and I expect it to go to new lows?

Thank you for any feedback.
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You could buy a ratio spread: Sell 1, Buy 2. However, you need to structure it in a way that a bounce in the underlying and a collapse in vol will minimize your loss ( perhaps come out with a small gain).

Note that vol is already extremely high, you may want to model for a larger collapse in IV.
 
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