Tuesday, August 10, 2010

Goldman Sachs (GS) - Weekly Trade; Selling Vol Expansion

GS is trading $153.84, down 1%, with IV30™ up 3.9%. The LIVEVOL™ Pro Summary is below.

I want to look at another trade involving the weeklies. First, let's look at the skew chart as of 8-6-2010.

Notice how tight the weeklies' vol tracks the expiring monthlies. I've highlighted in particular the 155 strike in the monthlies and the 150 strike in the weeklies.

Now, let's look at the skew tab today, as of this down day; as VIX has risen more than 5%.

I've noticed a pretty significant skew expansion and contraction in the weeklies across the underlyings on down and up days. SPY works even better, but I post those trades to thestreet.com so I'm not allowed to do it here per non compete. GS looks pretty good too though.

Let's look at the Options Tab (click to enlarge), and a possible trade.

I want to examine a trade that gets long 1 GS Aug (monthly) put for $3.30 and short 2 of the Aug 150 (weekly) puts @$0.47. Total debit is $3.30 - $0.94 = $2.36.

The idea here is that either:
1) GS goes down to $150 by this week and we close it our for a nice win.
2) If not above, then the 150 puts expire worthless and we sell the 150 puts again in the monthlies next week. This gives us one option to sell 4 higher vol options (note that we are using puts b/c the lower strikes are higher vol). And b/c I'm the biggest bear in the world and addicted to short deltas... But never mind that...

Word of warning. This trade loses if GS goes down ~$8 this week and is naked short puts at that point. I'll track this trade moving forward. As of the time of this post I do not hold any GS positions. I may put one on soon though.

This is trade analysis, not a recommendation. We don't give recommendations.

As of 12:26 EST, I did this trade very small.

The PnL chart for this trade at the MONTHLY expo (i.e. combining the expos into one) is included below (click to enlarge).

Legal Stuff:


  1. Any chance you could post the P/L graph?



  2. Gimme 60 seconds; will post right now.

  3. Are your posts on thestreet.com free or subscription based?

  4. thestreet.com are subscriptions. I think $1,000; but don't actually know. It's their new OptionsProfit.