Decay the Halls!

The VIX has been over 20 for a staggering 10-STRAIGHT MONTHS. Have you made the most of it? Option Pit’s Volatilty Edge trading service can help ensure you do. Join now!

Hi Shoppers,

Pretty wild market on Monday morning with all that bad news!

Of course, things have settled down and rebounded quite a bit.

Earlier this week I said FDX was over done on Friday being down over $16.00. 

Well, I called that before all this new virus news.

My idea was to sell the Jan15 250/200 put spread and collect $2.60.

Looking at the options volatility, the 250’s were trading at 37.68 and the 200’s are showing a 50.85 vol.

Huge difference, right? And why would I be buying the more expensive vol and selling the cheaper vol?  It’s totally against my preferred trading strategy.

But remember:  When an option is trading $.25 or lower, the volatility doesn’t really matter. What matters is that dollar amount. We are only buying the 200’s for margin purposes and in the event of a catastrophe, we will be limited on our downside risk.

FDX traded down to $268.51 today and closed at $271.40, down $3.63.

Let’s look at that put spread we wanted to sell at $2.60.

The market on the spread is $2.30-$2.53.  The put spread is down with the stock down on the day!  Exactly (and even better) than we wanted!

Those 250 puts went from a 37.68 implied vol to a 35.52 with the STOCK DOWN!

That is what I am talking about:  HOLIDAY DECAY.

Thanks for reading … See You Next Tuesday!

Licia Leslie

PS – Not only did Option Pit CEO Mark Sebastian have a front-row seat for the VIX’s creation, he’s also spent the last two decades (and counting!) as a top-tier trader. Put Mark and the VIX to work for you in 2021 with Option Pit’s premium trading service Volatily Edge. GET IT NOW

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