[TheOptionClub.com] Re: IV/VIX question

 

David-

If your calendar is ATM, then you're expressing an opinion financially that by expiry you expect the underlying to be near the ATM strike. The long vega back month is seductive but misleading. You might think that with a bearish move your long vega is going to "vega-hedge" your delta risk, but with large jumps, it rarely performs well. If you want to play this angle, then use OTM put calendars when you have a bearish expectation or when you need to add a bear hedge when neutral. It's not an "edge," but it does take advantage of a relatively consistent relationship between vol and the bearish spot move that adds to the p/l gains of your correct bear-delta guess.

wf

--- In OptionClub@yahoogroups.com, "Dawid Kozlowski" <dawid.kozlowski@...> wrote:
>
> Hi,
>
>
>
> I've started trading option (SPX calendars and iron condors) recently and
> I've been always making this simplification that I can expect calendar to go
> up in value by more-less change in VIX multiplied by Vega of the calendar
> (in TOS you can adjust volatility on the risk chart and that's what I've
> been doing). However it never works like that - today was the second time I
> lost money with a calendar on a down day with VIX shooting up - first one
> was in October. IV of the near month option goes up and far month option's
> IV stays put or goes down a bit. I don't understand that and would like to
> learn more about this. What would be a good place to start? What is a
> 'normal' IV skew for SPX options (ATM calendar)? Is what I am experiencing
> 'a normal' - meaning I should not be expecting SPX calendar to go up in
> value on a big down day when VIX is shooting up?
>
>
>
> Thanks, Dawid.
>

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