BGC Partners' Jared Woodard Option Strategy For SPDR S&P Retail (ETF)

BGC Partners' Jared Woodard was on Bloomberg TV recently to discuss when the realized volatility in equity markets will rise and to share his option trade on SPDR S&P Retail (ETF)XRT.

Volatility To Rise Before Fed Makes A Move

Woodard was asked will the realized volatility in the equity markets rise when the Fed actually raises rates. He replied, “No, it will be when people anticipate higher probability of them moving. I think, then investors will price in a move, price in [lift] off well in advance of the actual date. Whether it will be catastrophic, whether it will be a jump to 15 or 20 percent realized vol(atility) in S&P is a difficult question, but I don’t think investors are going to wait around to find out."

The XRT Trade

“This is one for the real vol(atility) traders,” Woodward said. “I mean, so XRT is the retail ETF, it has been kind of trading flat this year. The term structure, which you know think of the yield curve on treasury markets, implied vol(altility) term structure in the options market is usually upwards sloping in the same way, we are taking advantage of that.”

“September and December are trading about even for at the money strikes. So, looking at the 98 put calendar spread, selling September, buying December. You could do that this morning for little under $2.”

“It gives you the fine region movement, if the ETF stays flat or if the term structure flattens a bit you can make money on the trade. And I think that it’s a risk of picking up nickels in front of a stream rollers to be short vol(atility) here. But I think that when you have advantageous term structure, you can gain better relative value,” Woodward concluded.