Tuesday, October 21, 2014

Aqumin Volatility Newsletter 10/21/2014 - $SPX $VIX

Upside Call IV Destruction

I was trying to find a good word to describe what happened with the implied volatility today but the best thing I can think of was the phrase “burning down the house”. Note the deep red destruction of the upside implied volatility in the SPY on my OptionVision™ landscape.

Each building represents a call series with the change in implied volatility and it is mostly down and really down for the upside calls. This is the market saying whatever rally we have is not going to be the big Fed induced love fests of the past. Like in the Smith Barney commercials of old, the market will have to make money the old fashioned way; it will have to earn it.

10-21-2014 8-54-53 AM

That brings us to the trade idea now. IV is still at nice levels and we had a lower closing VIX for the first time in ages. The best trade would be a delta balance iron condor, maybe a little closer to the money than normal. The upside destruction of the call skew is letting us know it is ok. Think the bigger indexes like SPX.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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