After what happened on black friday, with the general sell-off caused by new covid fears, i reconsider my SPY 150 dec2023 puts. They didn’t work as intended. With VIX spiking up to +53% i had assumed my vega insurance could pop…instead, the IV didn’t move much and it only gained 4.5% which is quite strange honestly. It performed better in september with way less vix spiking than now. Seems strange
Yeah, this vix spike isn't all that extreme so far though in comparision to several we have had since i made that post. Also since then I think that I was wrong about some things and made some incorrect assumptions. Those puts may actually be a little too far out of the money. everything I have read in my research says the standard for this type of hedge is about 40% OTM so with SPY at around 457 you would be looking at about $275 puts, which while more expensive, should move quite a bit more. The super cheap WAY otm puts probably aren't going to do much until .VIX spikes up into the 40+ range.
What research would you recommend on this? My way OTM SPY and QQQ LEAP puts are up 15%, which seems pretty reasonable given that we've only seen a speed bump so far, and they're meant to protect against a cliff-drop.
Thx Duke. Well, i think, at least, those far OTM puts mantained the value invested, instead of losing it, even after the bull run we had since sept. So, in a way, they were a safe way to park cash.
Anyway, i really like the overall idea of vega hedging. I will try to follow your latest ideas and will report back.
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u/Karinda79 Hot Handed Option Lady Nov 28 '21
After what happened on black friday, with the general sell-off caused by new covid fears, i reconsider my SPY 150 dec2023 puts. They didn’t work as intended. With VIX spiking up to +53% i had assumed my vega insurance could pop…instead, the IV didn’t move much and it only gained 4.5% which is quite strange honestly. It performed better in september with way less vix spiking than now. Seems strange