IV has contracted across all sectors over the past few months, and post-Brexit, IV is at 52-week lows in a lot of areas. China has an IVP of ZERO (as measured from FXI). Oil's IV is sitting at lows, Brazil, the EURO for Pete's sake! One of the only areas that still has room for IV to fall is gold.
So, knowing my methods and processes, what do you think I have acted on? Ah yes, betting on IV contraction and expansion based on IVP.
So first, GDX. Straightforward: GDX looks a little extended up around 30, and IVP sits around 50. A simple bear call vertical was placed for Aug-26 expiration at the 32/34 strikes and collected a 0.50 premium. PoP = ~72%
Next is USO. Oil looks like it could continue to climb, but more importantly, IV definitely looks like it could expand over the medium term. Thus, a call diagonal was placed at the Aug/Sep expirations at the 10.5/11 strikes which cost a debit of 0.46. PoP = ~62%
Last is XOP. Once again, oil's IV looks like it could expand over the medium term, but XOP doesn't appear that it will move much in either direction, so I stayed delta neutral with a put calendar for Aug/Sep at the 34 strike and paid 0.60. PoP = ~40%.
These three positions are much smaller in risk compared to previous trades because their PoP is not fantastic and low IV environments do not provide the edge that I seek with my processes. I await earnings season once again.
Additionally, I would like to report on the performance of my virtual calendars and diagonals. With more attention paid to their profitability, they would have had more ... profitability. Of 5 total placed, 3 were delta neutral and 2 were delta negative. 3 were winners, 1 was a scratch, and 1 was a decent loser. Overall, a profit of 0.32% on capital was realized. Not too shabby but could have been better.
