3 Option Trading Ideas for This Week

12/05/2011 11:15 am EST


Jared Woodard of Condor Options presents, in video format, his thoughts on USO, the VIX and other option trading ideas for this week.

In the embedded video below, I look at some interesting volatility phenomena in United States Oil Fund (USO) options, SPY volatility skew, and VIX and VSTOXX futures.

Here are the trade ideas mentioned:

  1. Short USO implied volatility/long USO realized volatility: On the view that USO options are richly priced relative to likely future USO realized volatility, you can sell straddles, strangles, or iron condors here and Delta hedge with the underlying shares to capture the difference between current implied volatility and future realized volatility.
  2. SPY volatility skew: This is a chart we update and discuss each week for subscribers, and it has been a great tell over the last two months, as radically high skew meant short-term condors were a great sale. The skew washout last week has been partially reversed, so I still think SPX and SPY condors for January are attractive.
  3. VIX/VSTOXX futures: You need access to VSTOXX futures or to the VSXX ETN for this. The idea is that when the gap between VIX futures and VSTOXX futures gets particularly wide, a simple move is to sell the high flyer and buy the lower-priced asset; this has meant usually selling VSTOXX and buying VIX. The two have diverged again recently, so this set-up is worth a look. (Disclosure: We’re looking at this as well for managed account clients.)

By Jared Woodard of CondorOptions.com.

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