Volatility and Trade Ideas

I have been reading that a lot of people are betting or hoping that the VIX catches a bid this week and volatility goes up across the board. Since I  trade correlated assets such as SPX (but trade the inverse ETFs) I to would like to see some higher IV this week and a VIX above $21. With my agreeing thought on higher volatility I have to make the assumption that the market will correct a bit this week, which would help all my positions.

Currently I have not done much in the way of adding trades, I have rolled any July contracts out to Aug and I’ve added a SPY calendar to add some small long vega to my portfolio. I will be adding positions this week and below is one of my ideas.

The retail ETF XRT, currently XRT has been very strong but continues to stay in-side a well defined range. So I want to sell call premium, but if XRT can push up to around $62 I’d also like to take advantage of any up-side. So what I am thinking is a call diagonal spread, if XRT goes lower with everything else with this pop in volatility then that would be great, if it just wants to hang around or go up to the short strike that would be good too. The only thing that I have to watch is if XRT starts to move fast to the up side, in the case of a fast moving XRT I would want to shorten delta and possibly roll my short around.

This week I will also be setting my SPX butterfly. Right now for me to feel comfortable selling premium I want to see IV a bit higher, I think it is way to cheap right now. Once IV gets back to a level that I feel the risk is worth the reward I will start adding capital. But as of now I am going to manage my risk and slowly look for opportunities.

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