WT_041017_russell

Today’s What’s Trading episode was a discussion of a SPX Broken Wing Iron Butterfly expiring this coming Thursday April 13th.  Link to the video is below and after that some additional commentary about today's trade.

Click Here for Today's Video

The payoff diagram below shows the outcome if this trade is held through Thursday’s close.  Between 2345.60 and 2374.40 this trade makes a profit.  The payoff diagram below also highlights that the risk of loss is bigger on the downside than the upside. 

SPX PO

A question I got with respect to this trade focused on the higher premium paid for the 2330 Put when compared to the 2380 Call.  The Put is farther out of the money, but these days SPX skew is very steep to the downside.  The implied volatility to the SPX Apr 13th 2330 Put was 12.04 while the IV of the 2380 Call was only 8.35.  This difference shows up even better on the chart below showing the implied volatility for all SPX strikes between 2300 and 2400 expiring at the end of this week.  

SPX Skew