VIX is around 16.5 today, plummeting down from the 30 level 2 ½ weeks ago! At these VIX levels today, I am more comfortable with the risk reward? Could the VIX go a little lower? Of course! Do I think there is more risk to the upside? You betcha!
I’m looking at a conventional calendar with a little extra gusto. I’m playing a bit of a contrarian by buying an extra put (the ratio is buy 11 June’s and sell 10 May’s).
SPY should be between 130.50 and 136.50 in the next week (a nice range), which is one standard deviation at 15.3% IV
No downside plan for exit as if it goes down, volatilities will increase and the position will do well.
Upside risk management would be to take the trade off or adjust it if it goes over 136.50 in the next week, which is outside of one standard deviation.
The trade is set up at-the-money.
Dan Sheridan http://www.sheridanmentoring.com