Research

“OWN THE GOOD DAYS AND SHORT THE SH@TTY ONES.”

It is an old adage that option traders are wise to be long gamma on days when the market is expected to make big moves while collecting theta during intermittent quiet periods. Options prices will reflect volatility expectations with options expiring on days of important economic releases such as the Employment Report or CPI exhibiting higher implied volatility levels than those similar at-the-money options expiring on typical days. WeatherDCA normalizes implied volatility levels based on the recent historical realized volatility of each important economic release. By adjusting for the expected value of each release, options traders can discern fair value and own the options with the best adjusted value or short those options which are overvalued. The WeatherDCA vol calendar can aid real time decision making for OTC market makers needing to lay off risk as well as prop traders looking to create favorable risk-reward volatility or directional bets.

“BLACK SCHOLES IS A MODEL- ALL MODELS HAVE THEIR SHORTCOMINGS.”

Most market participants use the Black-76 model to price options on futures contracts. Time in the model is typically measured in business (rather than calendar) days. As the Black 76 model is based on a log normal distribution of forward prices rather than spot prices (as in traditional Black-Scholes) implied volatility is dependent on time, instead of being steady. The problem for the model and opportunity for the savvy trader is that Black 76 is poor at differentiation of options that expire a couple days apart, several weeks in the future.

ENTER THE WEATHER_DCA POWERTRADE

In addition to providing the WeatherDCA Calendar and up-to-the-minute Weather DCA implied volatility levels for ATM straddles, Weatherhelm Futures will also from time-to-time put up “Powertrades.” A typical set up for a Weatherhelm DCA Powertrade will involve selling options that expire on a day with no important economic data while buying options a few days longer expiring on a big release day. These trades may be pure volatility bets, or may have a directional bias depending on a trader’s preference and market view.

WEATHERDCA IS JUST ONE OF MANY WAYS WEATHERHELM FUTURES ADDS VALUE.

Every day, on every trade, we squeeze every last cent for our customers. We know how to trade complex option structures, tighten bid/ask spreads, and get the best possible fills. WeatherDCA represents our desire to add trade idea generation and cutting edge analytics to our client experience, but this is just the icing on the cake. Trade with us, you’ll see what it means to be DONE.