VolatilityAnalytics.com

  • About the Volatility Analytics Newsletter
  • Contact
  • VIX 101

Event Volatility Offers Low-Risk Opportunities

Posted by Scott Murray on January 31, 2013
Posted in: Uncategorized. Tagged: calendar spreads, futures, Options, trading, VIX, Volatility.

We are going offer volatility trades going forward that include skews in equity volatility, specifically ones where then near term volatility is either significantly higher or lower than back month vols. Calendar spreads around earnings offer tremendous returns with little risk, and since we aim to create asymmetric positions, this fits into our model.

Yesterday we entered into this position:

Calendar Spread
AMZN earnings 1/29 aftermarket
1/29 close  1/30
Expiration Type Strike Position Imp. Vol Price debit Price change Price change
1-Feb put 255 -10 108 5.23 3.2 6.55 3.75 6.55 -6.37
15-Mar put 255 10 42 8.43 10.3 0.18 -0.18
1-Feb call 285 -10 104 5.84 2.85 5.95 3.05 5.95 -5.63
15-Mar call 285 10 40 8.69 9.00 0.32 -0.32
tot debit 6.05 Current 12.00
return 98.3%

The key is the implied volatility spread between the weekly options that have earnings exposure and the March options. This is a double calendar, so direction moderately in either direction will enhance the returns. Provided AMZN falls into the 255-285 range, the long legs will have unlimited return potential. The trade was opened for a $6 debit and is now worth $12, as the weeklies should expire worthless.

Today we started a similar trade in FB:

FB earnings 1/30 AH
Expiration Type Strike Position Imp. Vol Price debit
1-Feb put 29 -50 150 0.72 0.55
15-Mar put 29 50 50 1.27
1-Feb call 33 -50 146 0.96 0.61
15-Mar call 33 50 50 1.57
 debit 1.16

With volatility in the calendar structure diverging to this degree, the underlying must make a huge move, around 10% in two trading days, for this trade to be a loser.

 

Posts navigation

← Volatility Will Return, But When? A Look at the VIX Term Structure
Volatility Returns After Prolonged Hiatus →
  • Subscribe to the VA Newsletter – $30/mo

  • Follow us on Twitter

    Follow @VolatilityWiz
  • RSS Volatility Analytics RSS Feed

    • Volatility Analytics Newsletter Samples
  • Recent Posts

    • Volatility Analytics Newsletter Samples
    • Summer Volatility – Will it Vanish?
    • Creative Volatility Trading (Part 1) – Calendar Ratio Spreads
    • Trading Volatility in a Low Vol Market
    • How Much Short-Term Downside is Left in VXX and UVXY?
  • Archives

    • May 2021
    • May 2018
    • May 2017
    • April 2017
    • November 2015
    • August 2014
    • May 2014
    • March 2014
    • November 2013
    • October 2013
    • September 2013
    • August 2013
    • July 2013
    • June 2013
    • May 2013
    • April 2013
    • March 2013
    • February 2013
    • January 2013
    • December 2012
    • November 2012
  • RSS VIX and More Blog

    • The Latest on VXX and Additional Creation Unit Suspensions by Barclays
    • SPX Weekly Options Will Soon Be Available with Expirations Every Day of the Week
    • UVXY Dominates VIX ETPs By Dollar-Weighted Volume
  • Categories

    • Uncategorized
Proudly powered by WordPress Theme: Parament by Automattic.