Directionally Challenged
Directionally Challenged
Since we have been posting about the VIX and SPX curve for what seems like an eternity I thought it would be nice to explore another part of the market. Actually what I have in mind is the opposite of the current air in the VIX. It is the continual implosion in the UNG Nat Gas Fund.
The UNG just reverse split 4 for 1 has followed its downward arc of rolling itself out of business since the fund has to buy more expensive future contracts to maintain it. Normally in a reverse split the name becomes a mire of lower realized volatility since a $1 move in a $20 stock has less effect than a $1 in a $5 stock. The thing is the pricing does not see it that way right now. Note the LiveVol chart below and the little wiggle of an uptick in IV60 (YELLOW LINE).
Livevol (R) www.livevolpro.com
There has been a some interest in IV that I would not have expected. UNG now is down around 10% over the last 3 days and the juice is picking up. In short the name is moving when the initial post-split pricing said it would not. I donít think April volatility is a bad buy at the 44% level as UNG has more of a story now. The movement might just surprise everyone at least that is what the options are starting to indicate.
The trade
The UNG Apr 20 straddle does not look like a bad buy for 44% IV as the post-split movement is a bit of a surprise. Then watch it run.
------------------------------------------------------------
Mark Sebastian is the Director of Eduction for Option Pit, and a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. He is co-host of "Option Block," the wildly popular show on The Options Insider Radio Network.
He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
To learn more about Option Pit and its mentoring services, please visit OptionPit.com
About Mark Sebastian
Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University.
To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com
View Mark Sebastian's post archive >
