Long Call Spread For Cost Effective Vol

Published on
May 18th, 2017
3 minutes

Long Call Spread For Cost Effective Vol

Trade Ideas ·
Featuring Samuel Gruen

Published on: May 18th, 2017 • Duration: 3 minutes

Samuel Gruen of Lightfield Capital explains how investors can benefit from rising geopolitical tensions, by trading volatility in a cost effective manner. Filmed on April 25, 2017, in Paris.


  • DW
    Daniel W.
    18 May 2017 @ 14:03
    I am pretty new to Options, can sb please explain how to structure this trade? From what I understand I buy a call option on the nearby VIX Futures contract with a strike of 20 and I sell a call Option on the nearby VIX Futures contract with a strike of 25. Correct?
    • SG
      Samuel G.
      18 May 2017 @ 15:38
    • DW
      Daniel W.
      18 May 2017 @ 16:19
      Ok, at which Point would I roll this spread? At expiration?
    • SG
      Samuel G.
      18 May 2017 @ 19:21
      Keep it simple. Let it expire and buy the new one one week before expiry.
    • RT
      Ricardo T.
      19 May 2017 @ 15:55
      Wouldn't it be easier to just buy a call spread that expires at the end of 2017? Right now it looks like the furthiest expiration for VIX options is Nov. 20/25 call spread costs around $0.80.
    • DR
      David R.
      19 May 2017 @ 18:07
      Ricardo, VIX option contracts are Euro style, so there is no early exercise. So whenever spot VIX spikes, the increase in further dated futures contract (and their derivatives) is dampened.
    • AP
      Alistair P.
      2 June 2017 @ 15:03
      Firstly, RVTV and Samuel, thanks for this! If Samuel or any other options experts might like to reply to this comment... So, I understand the motivation for trading the call spread given the steepness of the implied vol over the strikes (although please correct me on the rationale if necessary). However, what do you think of trading half (or so) of the number of outright calls on the lower strike and rolling / trading this each month? I guess, put another way, are we convinced, given the pricing of the instruments, that it is worth capping our upside given the overall thesis...
  • MT
    Mike T.
    20 May 2017 @ 07:49
    we've now had two Option Trade Ideas in quick succession, all good, keep them coming I like it; but caution is required. Whilst there's a high probability of experienced Option professionals within the RVTV subscriber base able to make best use of such ideas, there also will be some that simply do not have the knowledge to manage open option positons. For those that do not have the experience e.g. knowing when to use pre-planned option trade adjustment techniques is fraught with danger even when the recommendation comes from a knowledgeable RVTV contributor. My point being a 2 min video is too short with an option trade more than just commentary on the thesis is required, a little extra time providing insight into how into how trade is structured (appreciate this particular example is actually really simple) and how an open position would likely be managed by the speaker would be desirable in any future option trade ideas
    • SG
      Samuel G.
      20 May 2017 @ 13:37
      Couldn't agree more. Maybe I'll write a full post on it.
    • DD
      Doryn D.
      25 May 2017 @ 20:05
      :) After watching this video I realise that I have a lot to learn. keep them coming :)
  • PS
    PD S.
    20 May 2017 @ 23:13
    interesting. great idea (as wednesday already demonstrated)...
  • JL
    Jinny L.
    20 May 2017 @ 22:52
    As a prior vol trader the theory and R/R is generally true but in practice it doesn't work. Why? You HAVE to get the timing right-and this is very very difficult and luck plays a big part. This is why most options expire worthless. It's like shorting, unless you can get the timing then don't bother. I have bled/decayed many long options and it ain't fun.
  • SC
    Sau C.
    19 May 2017 @ 19:01
    This trade idea, Rao's oil and Bond call. Feels like many of the trade ideas is already halfway to completion when you consider the 2-4 week lag from recording to release. I guess RV has to time their videos to release one per day but maybe something can be done to reduce the lag.
  • VK
    Viresh K.
    19 May 2017 @ 15:23
    Thanks, Sam.
  • TW
    Thomas W.
    19 May 2017 @ 13:05
    I feel that 2 minutes is a bit too short to convey the idea. If I keep buying 20/25 bull spreads until December I need to spend -worst case- 40 cents 7 times to make -best case- 5 bucks. That sounds like a 50:50 chance to double up. If the cash index does not spike above 25 and stays there until expiration, I may get nothing. On average this is a hedge that breaks even if you are lucky?
    • SG
      Samuel G.
      19 May 2017 @ 13:35
      Well, current 1month pricing is closer to 25c. So 7*25 = 1.75 vs. 5 at max which is close to 3x ratio. That's just for the reward/risk metrics. Now, look at the distribution of 1 month moves in VIX and assign some kind of probability to that and deduce your expected outcome for the trade.
  • SC
    Shane C.
    18 May 2017 @ 19:16
    I like the action Sam. I think Dec 2017 is a good time horizon as well both in regards to trying time the market and in terms of simple cost of a longer dated option