Wednesday, April 8, 2009

Dy dayenu...

Market is marking time in the 815-835 range here for the past couple of days. That is enough to knock the VIX sub 40. 200 day MA drops to 875 as the calendar from last springs highs drop off. This is acting like a real bull. My guess is we get a rally soon as most people out there are waiting to buy the next dip.

Earnings season is here and the time is right for calendar spreads. You can do this in two ways. First, about 3 to 4 weeks before earnings, you want to buy the earnings month vol, and sell the front month against. So for instance, last week or so, you would have bought IBM MAY 110 calls and sold APR 110 calls against them for about $0.60. Today, that spread is worth $1.40.

A second play would be about a week before earnings to buy the May, and sell the next month against it. In this case you could sell the MAY/JUL 110 call spread in IBM for about $2.50. That currently does not look that appetizing to me as you are selling the JUL options on about a 35 volatility, not very pumped in this market. I will scan for better plays out there.

See you on the other side of the Seder plate.

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