Condor Options

Fun little graphic via the Times this morning showing the signals a NYMEX trader uses to basically print his own money (seriously, has there been any easier job since January 20, 2001 than walking into the NYMEX and loading up the boat on long oil contracts?).

We’re getting our own signals from the markets this morning: S&P futures are up 11 points, and Dow futures are up 82.  So the bullish shift of the past two weeks is being confirmed, and breadth and volume indicators are in agreement.  One question we’ve been getting is, “After such a large price move like we saw last week, why didn’t we see any correction or digestion of it?”

And the answer is that last week was a perfect example of correcting by time rather than by price.  One more of the infinite examples of why buying naked options is a losing proposition: if you were an uber-contrarian and you bought some ATM index puts after last Tuesday’s huge move, last week would have been very frustrating.  A long calendar or even short call vertical, however, would have kept you at least at breakeven.  It’s fine to ignore the existence of time when you’re trading stocks – you can always just hold on, it’s not like Steve Ballmer is going to come shout at you and take your MSFT shares away.  But if you’re trading options, it’s always essential to recognize that time is often just as important as price.

With only 11 days left until April expiration, we’re definitely in that zone where we’re looking for May trades and for April exits.  We will probably publish a double diagonal or double calendar later today or tomorrow, as we’re not particularly keen on selling volatility premium here when there’s so little (relatively speaking) to sell.

Oh, and the chart up there?   Just some VIX nostalgia.  The next time we get a spike up to 28 or 30 and the Bartiromos of the world are frowning, remember to tell yourself that those nice fat premiums won’t last forever, sigh…