Why It’s Easier To Recommend Trade Ideas Than Actually Trading Them

• Posted by Adam Warner
• on August 5th, 2010

So here’s a play I kind of like, buying Oct. puts in VIX and doing something against them. Maybe shorting VXX puts, or buying SPY puts. Why? There’s just too much premium in VIX Oct. futures. Something has to converge at some point.

And here’s the problem. You can’t actually buy October puts in VIX in the real world. At least without paying up. Markets are 15-20 cents wide for cheaper strikes, 20-30 cents wide for higher ones. If you want to give up that spread, fine, but that’s generally something adds up against you in a big way over time. So I don’t. I also made a living for 13 years as an MM trying to capture those spreads so I literally won’t do it in reverse. But if you sit on the bid, there’s just not enough order flow. You get filled when the bid becomes the offer and a market maker hits you. Not how I like to play (unless I’m the market maker).

What I’m trying to say is I can recommend this play, and sound great if it works.. But that assumes it’s all on paper, and not waiting for actual fills.

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