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Options Jive

Monday – Friday | 8:40 – 9:00a CT

Volatility Smiles & Strategy Selection

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Today’s Options Jive is all about smiles and strategies – volatility smiles, that is. A volatility smile refers to the collection of out-the-money implied volatilities (IV) on some market’s options. The distribution of IV is meant to give traders an idea of where the greatest fear of an adverse move lies.

The guys talk about the S&P 500 (SPY) volatility smile, which is more of a smirk due to greater downside fear, and compare it to the more evenly distributed IV among Gold (GLD) options. From there, the conversation moves towards how we use the IV distribution to formulate strategies around what we are trying to do in the market.

Tom and Tony get into ratio spreads, vertical spreads, and calendar spreads. For a more detailed description of volatility smiles and how they lend to strategy selection, check out the segment above.

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