Third Eye Marke...'s  Instablog

- Mean implied volatility on SPY options increased to 16.83 from 14.6 on Jan 20th when I recommended to buy volatility. FVE indicator's value rose from 13 to 14.8 during the same time. Although implied volatility is above the FVE indicator's value, the FVE indicator remains above its moving average so I would not yet take profits on long options, long volatility positions.
 

- All my indicators are pointing to higher probability of SPY correction than they were a week ago, although SPY price trend is still bullish. I feel comfortable in my current options position of being long Feb 128/125 put and short Feb 132 call, which was initiated for 0.30 back on 1/24

 

 

- I would also think that buying the Feb 128/125 put spread and selling Feb 132 call for under 0.30 would be a good trade to put on for a possible correction.

-Implied mean volatility was 13.6 for SPY as of 12/22/2010, according to IVolatility.com, which I would say is at fair value compared to my Fair Volatility Estimate (FVE) indicator's value of 14.1.
 

-FVE's previous low of 13.1 was right before the violent correction SPY went through back in April of this year. In recent history, FVE's lowest value of 10.5 was recorded in 10/26/2006.
 

-With volatility so low and options market makers looking to take profits a few days before and/or after the New Year, it may seem like an opportune time to look to go long options. However, I would wait for a triggering event, fundamental news or bearish signals from of my technical indicators.
 

-GLD position short Jan 142 call / long Jan 132 put (0.18 credit) put on 12/13 remains profitable. Expect GLD to fall sharply should it break below 50 day moving average, value around 133.8.