Are You Trading In a Fixed Strike Volatility World?


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Key Takeaways

Tom Jarck, Senior VP at the MIAX Exchange was a senior derivatives trader for several major banks for over 25 years. 
Jarck discusses the importance of understanding the complex nature of volatility and the need for a nuanced understanding to navigate the market effectively.
SPIKES, VIX and other volatility indicators are reflecting moneyness. However, once you enter an options trade, your PNL is tied to the IV of the option you own: You're in a fixed strike world!

Fixed strike volatility is crucial in analyzing risk in options trading. Listen in to hear more about the importance of mitigating risks while trading.

Key Takeaways

The S&P 500 maintained a tight trading range of 4,100 to 4,150 during the week ending May 12.
Despite significant efforts to push the market beyond these levels in both upward and downward directions, the influence of hedging flows in the options market effectively neutralized these attempts.
SpotGamma, through two crucial data points, has highlighted the significance of these trading ranges. The volatility trigger has acted as a support level for the S&P 500 at 4,100, while the key gamma strike has served as a resistance level at $415 on the S&P 500 ETF (SPY). These levels have effectively kept the market confined within this narrow trading range.

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Are you trading in a fixed strike volatility world?

The video discusses the difference between fixed strike volatility and at-the-money volatility. While the VIX hit a one-month low, fixed strike volatility actually increased, which is crucial to consider for open positions. At-the-money volatility is used for predictions and analysis, while fixed strike is important for existing positions. A shift in mindset is necessary to understand the risks of fixed strike volatility, and gives examples of how it impacts trades and profits. Overall, being aware of both types of volatility is important for successful trading.

Once you buy an option, you're in a fixed strike world

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