Skip to content

Long Dated Versus Short Dated Volatility

Tracking implied volatility surfaces can be very tricky without the right monitoring program or data collection methodology.  The benefit of tracking the surface is that it brings in all dimensions to options trading.  One of the anomalies that I have noticed over the last few months has been the persistence of high implied volatility levels on longer-dated options.  One easy way of seeing this is by looking at the ATM 1 year option implied volatility level versus the 3 month ATM implied volatility level.  Another imperfect way of seeing it is by noticing the steepness of the VIX futures curve.

What I show below is the skew of 3 month and 1 year options on two different dates:

3 Month Vol has fallen rapidly

From the skew charts I would say that selling 3 month vol at 60% moneyness looked great at the end of May.  In a difference sense, 1 year volatility looks relatively more attractive ATM and even out of the money under current conditions.  Always remember that price action is generally mean reverting, so if you believe in volatility cones you should believe that volatility should be lower over longer periods of times.

Posted in Derivatives, Markets, Trading Ideas.

Tagged with , , , , .

Copyright © 2009-2013 SurlyTrader DISCLAIMER The commentary on this blog is not meant to be taken as an investment advice. The author is not a registered investment adviser. There is no substitute for your own due diligence. Please be aware that investing is inherently a risky business and if you chose to follow any of the advice on this site, then you are accepting the risks associated with that investment. The Author may have also taken positions in the stocks or investments that are being discussed and the author may change his position at any time without warning.

Yellow Pages for USA and Canada SurlyTrader - Blogged