The Striking Price column in this weekend’s Barron’s features John Marshall from Goldman, who suggests an “opportunity to buy volatility” in the S&P Materials sector via the tracking ETF (XLB). He makes the bearish case for XLB, arguing: 1) that the materials sector is particularly vulnerable to any slowdown in global growth, 2) that the ETF components include some less resilient names, and don’t feature the best of breed like POT and MOS, and 3) that hedge funds are relatively overweighted…
To the right is a fun little trade called the Straddle Strangle Swap. Look familiar? It looks a lot like a simple calendar spread or a butterfly spread. In actuality it is both, making it what I consider a sort of super calendar spread. Now lets take a look at how to construct these and what qualities make them so super.
Straddle Strangle Swaps are a specific type of Double Diagonal. They involve selling a front month straddle and buying a…
So last time we talked about why longer term vega might not give you a lift with the VIX. So what about trying to catch the VIX with closer volatility using a 1 month calendar spread (June/July). Once again you might find yourself slightly frustrated. So lets take a look at the second dimension of the volatility skew to see why.
The Second Dimension
The second dimension of the volatility skew comes from the fact the market likes to buy out of the…
Does this describe you?
You’d like to participate in any nice rally that comes our way over the next month;
You’d like to avoid any and all downside risk in case the rally never comes and indexes stay flat or plunge;
You’d like to get paid just for hanging around and waiting to see what happens.
Here’s a funky little way to do exactly those things. This trade has all the features that long-theta traders love, including long theta (positive time decay), defined risk,…
Sunday, July 13, 2008
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