Volatility lower, long Vega option spreads in focus

Added: 2026-05-25

[00:00:17]Hello again everyone and welcome to the Options Mentor. I hope you're having a great extended weekend here at least with the market being closed tomorrow and here in the US it is a holiday weekend. So we'll start the market out this week on Tuesday and then on Friday probably the biggest news day of the week. I think there's a GDP and a PCE that day and of course we're always watch watching what's going on in the Middle East. So that'll be another factor. But as we head into this holiday weekend I guess what many would say the beginning of the summer here in the northern hemisphere.

[00:00:54]Uh we have uh the market near all-time highs.

[00:00:59]>> [snorts] >> And a a little bit of chop starting to go on in the market just a little bit of back and forth. Let's look at a chart here of the SPX.

[00:01:11]And um we can see that really for the month of May that we've we've bottomed out in the lowest 73s and we went up to an all-time high there.

[00:01:23]Uh just over 75.

[00:01:26]Uh tried to get up there the other day didn't quite make it. Came a little short of hitting all-time highs.

[00:01:32]Uh and then we actually backed off towards end of the day. I really thought we would end right around 7500 uh but we didn't. We got a little bit lower than that and ended the day on Friday at 7473.

[00:01:45]But we're seeing a little better back and forth trades uh going easier for us.

[00:01:51]Uh once again with my trade alert service I think we're um 19 out of 22 on the year or 18 out of 21 on the year. Things are going very well.

[00:02:00]Link for that in the description if you want to join me with that and every day.

[00:02:04]Oh, while we're on that type of thing, don't forget to hit the like, subscribe, and notify buttons for this channel also.

[00:02:11]All right. So, that is where the SPX has been trading.

[00:02:15]And we have that VIX, as I mentioned earlier, going down a little bit. 16.70 and ended on Friday. So, I'm thinking if we get into Tuesday with the VIX in a similar range under 17, the market, you know, not too much disturbed by anything, then maybe we'll go back to that calendar we mentioned it a couple weeks ago.

[00:02:35]And the calendar, which by the way, I just took one off profitably. Um, the calendar's, you know, really is my favorite trade. You just don't get to use it a lot unless we're at, you know, 16s and below. And a lot of times we haven't been there over the last couple years. So, here and there, but we've spent a lot of time in higher volatility.

[00:02:57]And you know, I've mentioned many times that I don't do single flies anymore cuz it's too hard to get the widths you want without getting super expensive and really, really wide. And I just think double complexes are better. Uh, so I've been doing those either double flies or all my other combos. But with the calendar, I still like it.

[00:03:17]Uh, and if we look at this, if you look at the expected move by this Friday, which would be the 29th, it's 114 points. This market, you know, doesn't It's really amazing when you're this far up, uh, that even small percentage moves are a lot of are bigger numbers, right? Cuz we're at 7,500 essentially.

[00:03:39]But if we went up 114, you're going to be up in still inside the graph. And if we went down 114, you're going to be right around the bottom of it. Probably get a little further cuz this will swell up with volatility. Oh, and here's another thing I've mentioned. You know, over the last probably 2 years, I've told you a lot uh that it didn't used to be that call calendars were so much more expensive uh than put calendars and that uh they weren't, you know, call calendars got really wide. I just ended up just using call calendars.

[00:04:13]And uh I attributed that uh to the fact that there's a lot of demand for calls in a very upwardly burgeoning market. But, I've noticed over the last couple of weeks, if you look at this, here's a 7470 put calendar selling the 12th, buying the 16th at $7.70.

[00:04:34]Lower break even is 73.59, upper break even 75.96.

[00:04:42]Look what happens when I change it to calls. It's only 20 cents more. I think really it's probably been a dollar or more a lot of times.

[00:04:51]Upper break even just about four points higher.

[00:04:55]And the lower break even, I guess that's actually I think a little above. I think we were 73.59.

[00:05:01]So, the widths are almost identical. The prices are almost identical. So, it looks to me like put calendars are back in the game.

[00:05:12]We can actually use them again. It doesn't matter, folks. You can use either.

[00:05:17]You know, the SPX is cash settled. So, we don't have this in the money issue.

[00:05:22]Now, if you're doing it with something like ES or um the uh spy, now those aren't cash settled. You got to be a little more careful whether it's puts or calls, but with being through your short strike.

[00:05:36]So, but in SPX we don't have to worry at all and and to me now, if they're going to be just about the same widths and everything, to me they're interchangeable.

[00:05:46]I used to say you could in SPX you could do put calendars or call calendars and just do those your whole life as far as you never of course you have to do other trades but what I mean by that is if you're ever doing calendars you could do either interchangeably. And then as I said over the last few years you haven't been able to do that because they were different animals.

[00:06:07]>> [snorts] >> But now it looks like they're coming back together perhaps perhaps calls and puts the demand for them is more equalizing now. You could certainly see and I've talked a lot about it when you're at all time highs there's a lot of put buying and the VIX sometimes will stay kind of firm there.

[00:06:24]Uh but maybe there's enough of that now to kind of balance out the call uh buying and uh some folks may feel that hey the market's going to take a bit of a breather here.

[00:06:34]Uh a lot of folks have been saying that for a long time doesn't seem to materialize uh but perhaps we're getting closer to that when you see more parity between the puts and the calls as far as you know what a calendar structure looks like.

[00:06:51]So I think that's a good thing it gives you just another thing you can use you can use put calendars you can use call calendars whatever you want to use.

[00:07:00]Uh so whenever I do one of these I usually like to go out bare minimum and really now I'd rather be further but historically I would go out to a week from the Friday I'm in. So this Friday is the 29th I'd normally go out to the 5th uh and and at the most the 12th uh but I've gotten to where I've liked being out that little extra there.

[00:07:22]Uh so the 12th now is kind of my minimum and I'd probably go out another week if you wanted further out in time just means you're more volatility sensitive could be good could be bad and uh the trade will decay a little slower.

[00:07:35]Uh but with this you can see we got great decay. I mean you're paying about 800 bucks for this, if you paid 790.

[00:07:45]And uh with a theta decay of 28, it doesn't take you very long to get to essentially $80, which would be 10%, right?

[00:07:55]Uh you could be there, you know, you may even uh be there by Thursday or Friday.

[00:08:02]So, I don't think that's uh so bad. Now, remember volatility makes a total change in that. You could get there faster, and it could certainly be slower. Now, of course, this is Sunday, the 24th. I'm showing you this.

[00:08:14]Uh we'll see how it goes by the time we get to Tuesday.

[00:08:20]So, I think, like I said, I think calendars are are in here. I'm very happy about that. There's other trades you could do. Could you do double diagonals here? Yes. Could you do any of the fly combos? Yes.

[00:08:32]Um probably a little less likely to do double flies, but uh you could do them.

[00:08:38]I don't think it's that far off the mark.

[00:08:41]So, uh with this, we're heading into summer, and I wanted to talk about another thing about that. You know, traditionally, you know, for years, I don't even know how long, 50, 60, whatever years, you always hear, "Oh, sell in May and go away. The summer is can be the doldrums." Well, you know what? Over the last couple of years, that hasn't been so true. You know, in a lot of my trading career, which I began in the late '90s, uh it was true. But and then uh over the last few years, with this bull market, it seems that we have buying all summer.

[00:09:14]Now, we still have, as I've often told you, that tricky period when you get into August, it seems like each week has a little less volume, and towards the end of August, very little volume.

[00:09:25]You can have some big moves on very low information, and sometimes some really nasty down moves.

[00:09:32]Uh but don't uh take for granted that it's summer That might still be true in stocks. I don't do stocks, so I'm only speaking for options.

[00:09:43]But, in the options world, plenty of action in June to July for sure. Maybe a slight waning of it in August and then of course, we get back to business even more so with more volume in September.

[00:09:58]So, there's something to keep in mind.

[00:09:59]You know, I've been trading a long time and you have to you have to check where you're you're you're knowing your principles. Are they still valid?

[00:10:08]Meaning, you know, things change in the market. It's not a fixed thing in history where you can say, "Okay, this happened here and uh that's never going to change cuz it was in the past." Well, in the market, things that work sometimes don't work others. Even axioms like sell in May and go away can become much less uh important and relevant as the market goes on.

[00:10:33]Uh so, keep that in mind uh with your trading. Uh take a look at charts or whatever you need to look at and volume and see what you think of that whole concept. Uh but, I will be back here next Sunday with another edition of the options mentor. I really would like to see you every day over there at uh my Slack channel and with my trade alert service and then we have uh I have Zoom meetings every day the market's open.

[00:10:58]So, a lot there for you. A lot of education going on. You could find out how to totally manage these trades.

[00:11:04]How to uh adjust them and everything else. How do I calculate profit? When do I take profit sooner or later? Those things.

[00:11:12]Those are all things that come out over there if you join me every day and you can also just email me about it. The link's in the description for my email.

[00:11:20]To find out more about my services or one-on-one mentoring where just you and I will meet in the Zoom meeting room.

[00:11:28]All right. That's what I have for this week. I hope you have a great weekend.

[00:11:33]Have a great trading weekend. I will be back here with you next Sunday for another edition of the Options Mentor.

[00:11:38]Bye-bye.

[00:11:44]>> [music]