Sunday, November 1, 2009
VIX and the Crush
So I'm looking at the VIX and potential short IV earnings plays for the coming week when I noticed something that may be of importance to those of us selling the IV crush. Last quarter's earnings period mostly took place in the context of a steadily declining VIX, which was at levels that we are very recently returning to. The only difference now is that the VIX is spiking upwards, and rather severely on some days. My thought is this-in the current environment of renewed and rising volatility we may not get such a heavy post-earnings crush that we have been accustomed to "back in the day" of falling IV. Anyone else have thoughts on this?
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I totally agree with you. Although we're getting more premium for what we're selling, the IV crush isn't as pronounced because market IV is moving higher. I have been choosing poor candidates though: APOL and DV...vicitm of some really bad news, so IV actually increased.
ReplyDeleteThe way I see it, if IV keeps climbing, premiums are going to get better, and the probability of IV pulling back (which would help our short IV outlook) increases. So, keep puttingd the short IV trades on for earnings. However, I think it's important to mix up those trades with +gamma trades to catch a big move if it happens.