Monday, July 20, 2009

Triple ETF Options Landscape

Since I find myself increasingly active in trading options in triple ETFs, I thought readers might find it interesting to see a graphic of some important options data on the triple ETFs currently in the market.

Utilizing data from iVolatility.com, the spreadsheet below captures the average options volume, open interest and current implied volatility for the 12 pairs of triple ETFs. I have separated the ETFs into four groups: broad index ETFs (market cap focus); sector ETFs; geography ETFs; and bond ETFs. I have also color coded the top five pairs in terms of liquidity in green, with two additional pairs highlighted in yellow that I believe are liquid enough to trade, though they do not yet have the following of the “big five.”

I will refrain from additional comments, other than to note that I believe a lot of additional information of interest can be gleaned from this relatively simple graphic.

For a related post, see: Using Options to Control Risk in Leveraged ETFs

[source: iVolatility]

7 comments:

stonebat said...

i guess the implied volatility will continue to slide down if the market is range bounded throughout this summer. for those who earned a lot, triple etfs options provide cheaper way to hedge than vix options. thats like my car's insurance coverage gets tripled while the premium stays same. there has been no massive selling pressure since march. trying to draw any logical conclusions from the recent volatility actions will drive anyone insane... for now im just ignoring... as im ignoring the fundamentals as well. market is irrational...

Eric said...

Bill, how are you typically playing these? I have had very limited success with options on 3x ETFs. Right now, 3x ETFs to me, are where premiums go to die.

Bill Luby said...

Well said, stonebat.

Eric, without getting into details, let's just say that if triple ETFs are the places premiums go to die, then I want to own the mortuary.

Cheers,

-Bill

Anonymous said...

Look like VIX going to teens? One interesting thing though, what's up with C? A nice green day today and C down almost 9%?

Anonymous said...

Billy, You wrote.."Bill Luby said...
Hi Trading Nyhmph,

These type of divergences are fairly unusual and usually bode well for the bears. I'll do my best to have a post about this up before tomorrow's open.

Cheers,

-Bill

July 15, 2009 1:31 PM"......Thank you for the following post, sorry it took me so long to get back. Nymph

stonebat said...

pls... dont ever use the options on triple etfs as the primary trading entities. they r for the hedging. buy otm call options for long positions hedging. buy otm put options for short positions hedging. for hedging purpose, i would luv to buy options on highly leveraged risky triple etfs to lower the premium cost. even if i lose the entire premium, my net gain could be still positive if the hedging premium cost was less than the gain from my primary trading entities. loading up the risky options hoping to pick the exact volatility bottom? why not buy lottery tickets? as some said, "i'd rather miss the volatility bottom"

Tom said...

"if triple ETFs are the places premiums go to die, then I want to own the mortuary."-- well-said Bill!
Write thinking indeed.......

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