This page has been archived and commenting is disabled.
Goldman Recommends Buying November 1,125 SPX Puts, Dec VIX Puts, Selling Dec VIX Call Spreads
From Goldman's Krag Gregory (Ph.D): "Expectations for QE2 and the election are high and fear as measured in options has been cut in half. We analyze the “optimal put” to buy for those who are fully invested, have participated in the recent market rally, and are concerned that the Fed or the election may disappoint. In a scenario where the market pulls back -2.5% by market close Wednesday, the optimal hedge is buying SPX November 1125 puts for $6.6, in our view." Yet the top recommendation by Goldman, based on some ironclad technical analysis, is that "VIX Futures are at 24.3, a hefty 12 points above or 2x the average realized vol level of 12 post midterm elections. If the FOMC and election results meet expectations, we see a scenario where implied vol could fall notably. We like using VIX options to position in a limited loss fashion." Therefore Goldman's two recommended trades: Trade1: Sell Dec-10 20-22.5 VIX call spreads for a credit of $1.2 (sell 20 calls/buy 22.5 VIX calls). Trade 2: Buy Dec-10 VIX 21 puts for $1.1. Of course, the past 12 midterm elections all occurred during an unprecedented market regime in which overall vol was trading in the 9-11 range, and as a result killed the swaption market. But who cares. All that matters is that Goldman wants to buy vol from its clients.
And what is it selling?
The “optimal” downside hedge: Buy Nov-10 1125 SPX puts for $6.6 to position for a potential decline (112 SPY puts). A downside scenario could occur if the FOMC underwhelms the market in terms of the amount of QE2 and election results disappoint, in our view. Given lower vol and skew levels and an upward sloping term structure, we prefer owning OTM November put options to hedge. Assuming a conservative no shift in by strike vol, our results indicate the “optimal” put to own assuming a 2.5% down-move in the SPX by close of market Wednesday November 3 would be the 1125 S&P 500 put strike (corresponding strikeon SPY: 112 ). Assuming a -5% move by Friday’s close (November 5) would suggest owning an 1100 strike put (corresponding strike on SPY: 110). Details of our analysis are provided on page 8. Option buyers risk losing the entire premium paid.
Thus, to be on the same side of the trade, one should be buying vol and selling a market dump (with big theta). Which means the sweet spot for a move lower will be one starting some time next week... Or something. Squid logic, after all, is impenetrable.
Full report:
»
- 7061 reads
- Printer-friendly version
- Send to friend
- advertisements -
Sure you can trust Govtman....
RALLY!!!!!
So as the retail investor we should buy volatility and buy calls on spx? Interesting
On a long enough timeline
the client return for every
GS hedge drops below zero.
guess we are supposed to buy into the "rally" that comes tomorrow.
I would not do business with these leeches in a million years, instead I bought SPY Dec Puts, lots of them at decent OTM strikes, we'll see who is right, me or the golden smucks!
Comment below
'All that matters is that Goldman wants to buy vol from its clients.'
The single best piece of investment advice you will read all year. As always, do the opposite of the published Squid call.
WWHWD?
What would HarryWanger do?
What a "Buzz" kill.
is goldman still in possession of software that "can manipulate markets in unfair ways"?
All that matters is that Goldman wants to buy vol from its clients.
This is making me feel better about the long vol position I've been building.
"Eeeeeexcellent"-Burns
I'll get right on that. :rolls eyes:
This feels just like X-mas eve...waiting to find if Santa Ben brought the market that new red rider bb gun they wanted and then waiting to see if the market shoots it's eye out?
You’ve got to love how Goldman is always watching out for and reaching out to the common man as they manage our nation’s monetary, fiscal, and economic policies. I’m sure every middle class Joe who’s unemployed and six months behind on his mortgage is going to be all over this trade recommendation.
“Honey, did you finish your online resume?”.“Just as soon as I short the VIX dear, let’s not forget our priorities”
got gold?
Doh! I put on the same "optimal" downside hedge before reading this... I have to find the fastest way to reverse it RIGHT NOW.
We have all cheap uggs for sale in our website http://www.salesuggs.org ! You can meet all your needs for UGG hot sale here and will certainly be satisfied with the top quality at low price. All UGGs on sale are made with the 100% genuine sheepskin from Australia and are hand-made in our own factory completely. So you need no to worry about the quality and the cheap UGGs for sale are all to be delivered in free shipping. Enjoy the large discount!
1.
UGG Amberlee
|UGG Kensington
|UGG Elsey
|UGG Langley
|UGG Roxy Short
|UGG Roseberry
|UGG Oliviya
|UGG Raya
UGG Brookfield Short
Welcome to our website-- http://www.ugghots.com , we are making the promotion for many uggs now.Here is a chance for you that you want to buy good ugg classic boots by cheap price.At present our hot sale snow boots has :
| UGG Delaine Boots
| UGG Gaviota Boots
| UGG Gissella Boots
| UGG Evera Shoes
| UGG Upside Boots