Condor Options

Random Walks and Random Jumps: Taleb on Volatility

2008-09-18T13:48:00Z

Nassim Nicholas Taleb, author of the widely discussed The Black Swan and Fooled By Randomness , is out with a new paper. “The Fourth Quadrant: A Map of the Limits of Statistics” pursues a thesis very familiar to his readers, namely that economistsand finance professionals put society at risk by offering false comfortin the form of statistical models...(read more)

Trading Volatility at the Extremes

2008-09-05T17:25:00Z

Back during those halcyon days of early and mid-2008, when all anyone wanted to talk about was VIX spikes ,the indispensible counter-argument from some of us in the financial blogosphere was that arbitrary absolute VIX numbers are basically meaningless, and that relative context is the thing when it comes to analyzing volatility...(read more)

Trading Against Low Volume Rallies

2008-08-29T22:20:00Z

Much of the talk these days has been about the incredibly low volume across the board. Well, “incredible” isn’t the right word at all - this is a perennially quiet time of year in the market. But what was kind of interesting was today’s meaty rally on such low volume: except for the Nasdaq, the major indexes were up more than 1...(read more)

Avoid Options on Inverse Index ETFs

2008-06-26T11:26:00Z

Reader S. V. raises an interesting question: I am working on scenarios to trade the contra-ultra indexes like SDS to take advantage of either a combo spread (selling puts and buying call) or another method to take advantage of price movements while reducing risk...(read more)

How to Play a Lehman Collapse, Conservatively

2008-06-04T13:25:00Z

Shorting the stock doesn’t seem all that attractive an option here. If Lehman proves that their assurances actually have some merit, the stock could snap right back to the 40-45 level. Instead, we want to take advantage of the monstrous volatility that has been priced into the near-dated options...(read more)

Hedging Ideas for Iron Condors, Part 1

2008-04-26T17:08:00Z

What should you do when the underlying moves against an iron condor position you have open? (For example, if you’re a member, you may have noticed that one of our DIA trades for May expiration is looking threatened by the recent price action in the index...(read more)

Is the VIX Impervious to Technical Analysis?

2008-04-14T13:01:00Z

Yes, yes it is. The psychologist Abraham Maslow famously said, “When the only tool you have is a hammer, everything looks like a nail.” It has become increasingly common to see financial journalists and bloggers refer to the VIX as an indicator of market sentiment and sometimes of market direction, and those authors inclined toward technical analysis even apply their tools to draw predictive conclusions...(read more)

Bonus Trades: Long Financials, Short Energy

2008-04-11T04:22:00Z

These are very short term overbought/oversold technical plays only. Energy (XLE) Thesis : The Energy ETF is well overbought on a short-term basis - practically maxed out at 99.98, and the implied volatility relative to its historical volatility over the past 21 sessions is also giving a sell signal...(read more)

Participate in the Rally with a Broken Call Condor

2008-04-11T04:21:00Z

Does this describe you? You’d like to participate in any nice rally that comes our way over the next month; You’d like to avoid any and all downside risk in case the rally never comes and indexes stay flat or plunge; You’d like to get paid just for hanging around and waiting to see what happens...(read more)

Feed Your Hedge

2008-04-11T04:20:00Z

Traders are behaving cautiously today, to say the least, as they suffer through the post-Alcoa, poor-home-sales hangover ahead of the Federal Reserve’s release of the minutes from the FOMC’s March 18 policy meeting. Yet implied volatility, in VIX terms, is up less than 2 percent...(read more)

6 Rules for Getting Your Trades Filled

2008-04-11T04:17:00Z

Sometimes, you’re making a completely reasonable request, and Mr. Market decides to be an obstinate jerk. Yesterday afternoon was a great example of this: we were routing some ordinary, run-of-the-mill spreads, and trades that normally should have been filled right away at the mid price (halfway between the bid and the ask) just sat there, even after a morning of easy trading...(read more)

VIX Tricks: What Volatility Is Telling Us

2008-03-17T22:13:00Z

Some volatility-related items of note, ranging from the obvious to the esoteric, in that order. 1. On Friday, the VIX closed at 31.16, its highest level since April 2003. Today, it spiked up to 35.60, which does not exceed the highs from January 22, 2008 or August 16, 2007 - but remember that the VIX is just an index calculated from SPX options prices, it’s not a tradable entity in its own right, and it’s really being asked to bear too much of a predictive burden these days...(read more)

Sitting On Hands

2008-03-17T22:04:00Z

This is a particularly eventful, if weird, week - the Fed is cutting rates on Tuesday, Lehman and Goldman report earnings on Tuesday, Visa is scheduled to start trading on Wednesday (we are bullish), and Thursday is March options expiration, though trading should be relatively lighter ahead of the long weekend...(read more)

March Monthly Review

2008-03-17T13:53:00Z

You don’t have to be a grizzled value investor to agree with Warren Buffet’s two key rules of investing: “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” Since we opened our first trade for March expiration, the S&P 500 index is down almost 100 points - that’s a loss of over 6...(read more)

Bonus Trade: XLF Iron Condor

2008-03-10T21:22:00Z

XLF, the Financial sector ETF, maybe double-bottoming here in the short term. Or it may not. But implied volatility in the April options is at 49.81%, and we know for sure that implied volatility in the options is well above the historical volatility, so we want to sell a little bit of premium here...(read more)