OptionsHouse

Options Trading News

April 17, 2013  Wed 9:47 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
The S&P 500 is pushing back toward Monday's lows, but one trader is betting against a crash in the near term.

optionMONSTER systems detected the sale of 2,996 SPX Weekly 1275 puts that expire next week, going for the bid price of $0.05. These options, which are based on the index and have no single underlying, are cash-settled contracts that can be exercised only at expiration, though they can be traded any time before that.

This put-selling strategy is often known as "nickel selling," as in "picking up nickels in front of a steamroller." It has a high chance of profit, as the delta suggests a less than 1 percent probability that the SPX will be below 1275 at the end of next week, but the risks are significant. For example, if the SPX was down to 1274, the trader would lose $0.95--and obviously that would increase with any losses from there.

The VIX, which is based on the SPX options, is up to 16.18. The implied volatility of those out-of-the-money puts is 41 percent, so this is a volatility-selling strategy. The other risk in the strategy is that it is obviously highly leveraged to be able to get any profit out of it.

The SPX is down 22.76 points, or 1.45 percent, to 1551.81. The recent action in the index has driven its 10-day historical volatility up to 17.9 percent.
Share this article with your friends


Related Stories

SPX

Stocks in holding pattern near highs

February 27, 2015

S&P 500 futures are down 0.15 percent but are less than a percentage point below Wednesday's peak. Most overseas markets were little-changed, aside from India, which rallied almost 2 percent.

SPX

GDP, Chicago PMI lead calendar

February 27, 2015

The Commerce Department will announce revised gross domestic product for the fourth quarter at 8:30 a.m. ET, followed by the Chicago Purchasing Managers index follows at 9:45 a.m. ET.

SPX

Futures inch higher after key data

February 26, 2015

S&P 500 futures are up about 0.1 percent ahead of key economic reports, while European markets gained about 0.3 percent on the heels of confidence numbers. Asia was strong overnight.

SPX

Durable goods lead today's docket

February 26, 2015

The Commerce Department will announce the numbers for January at 8:30 a.m. ET. Economists expect an increase of 1.7 percent overall and 0.5 percent excluding transportation equipment.

SPX

Stocks holding in range near highs

February 25, 2015

S&P 500 futures are off 0.1 percent, and most of Europe is down slightly more. Oil and currencies associated with global growth are trying to rebound on strong Chinese manufacturing numbers.

Invest Like a Monster - Las Vegas: March 13-14

TRADING WEEKLY OPTIONS

The fastest money in the market
View full report »

Premium Services

Webinar Recording

Turbo Charge Your Trading Profits

Education & Strategy

The Strike-Based Greeks

The other Greeks (Gamma, Vega, and Theta) are calculated by using month and strike data, and not by individual option. These are called strike-based Greeks. Gamma, Theta, and Vega are all strike-based Greeks

View more education articles »