Tuesday, May 25, 2010

Short Dow 30 (DOG) - Bets Build on a Market Down Turn

DOG (Short Dow 30) is trading 53.84 up 1.8%. The LIVEVOL™ Pro Summary is below.

The ETF has traded over 6,300 options on total daily average option volume of just 625. All but 244 contracts have been calls for a 25:1 call:put ratio. The largest trades have been the front month 52 and 53 calls. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that open interest in both the 52 and 53 calls is about as large as the trade volume. By digging into the Level II details, I found that on 5-19-2010 (i.e. last Wednesday) the OI in the calls started to jump. Not surprising, it's long open interest. The OI in these two lines as of tomorrow will be very large relative to any other lines.

The Skew Tab snap (click to enlarge) illustrates clearly the vol of those two lines relative to the rest of the chain.

Notice how the skew chart looks like an inverted (mirror) image of a normal skew. This makes sense since calls in this are in fact puts in the Dow, so we see higher vol on the upside than the downside. Also notice that the calls purchased are ATM, this makes them cheaper vol (again see the skew chart). i.e. Replace some vega risk with delta risk.

Finally, the Charts Tab (6 months) is below (click to enlarge), just the stock chart this time.

You can see the rip upside recently. Bets are building on a lower market, though this bets stays away from the expensive "wings" vol.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. could this possibly be a trader legging into the 52-53 call spread instead of outright buying of both? also what did the IV do over the week? thx

  2. Feels like a call stupid (purchase/purchase). I believe IV has jumped as the market has fallen, but I don't know for sure as the data on this particular chain is a little light... That's why I didn't include it in the post. Very good question though.