LEAPS Were Steady During Vol Spike. Why? (2024)

During the recent vol spike, my long put ATM UVXY LEAPS, expiring in 27 months, barely moved in price, fortunately. How long, or how far OTM or ITM, until should I expect significant price movement from a similar spike, should that happen. Any measurements for this, Greek I should watch closely, or anything else should be on the lookout for and maybe hedge against?

From ChatGPT

When dealing with long put options on UVXY LEAPS, particularly those that are ATM (at-the-money) and with a long time to expiration (27 months), there are several factors to consider in terms of price movement and what to monitor:

1. Delta

• Delta measures the sensitivity of the option's price to changes in the underlying asset's price. For an ATM put option, the delta is typically around -0.5. This means that for every $1 decrease in UVXY's price, the put option's price increases by approximately $0.50.
• Since UVXY is a volatility product, large moves in the index can happen. However, because your LEAPS has a long time until expiration, the delta will move more slowly compared to a shorter-term option.

2. Gamma

• Gamma measures the rate of change of delta with respect to the underlying asset's price. Gamma is highest for ATM options and decreases as the option moves ITM (in-the-money) or OTM (out-of-the-money).
• As UVXY moves further ITM, the delta will become more negative (closer to -1), meaning the option will start responding more significantly to movements in UVXY.

3. Vega

• Vega measures sensitivity to volatility changes. Long-dated options like your LEAPS have high vega, meaning they are significantly impacted by changes in implied volatility.
• During a volatility spike, vega will cause the option price to increase, even if the underlying price does not move much. However, since your option didn't move much in the recent vol spike, it suggests that the spike might have been expected (already priced in), or the change in implied volatility was not sufficient to impact your option significantly.

4. Theta

• Theta measures the time decay of the option. LEAPS have lower theta decay compared to short-term options, meaning your position won’t lose much value daily just because time is passing. However, as expiration approaches, theta will increase, and time decay will become more significant.

5. Impact of Moving ITM or OTM

• ITM: If UVXY declines and your put moves ITM, delta will increase towards -1, meaning each dollar move in UVXY will more fully translate into the put’s price. The option's price will move more significantly in response to UVXY’s price changes, and gamma will decrease, stabilizing the option’s sensitivity.
• OTM: If UVXY rises and your put moves OTM, delta will decrease towards 0, meaning the option will be less sensitive to price changes in UVXY. The option’s price movement will slow down, and vega’s impact will also diminish.

6. Hedging Considerations

• Volatility Decay: UVXY is subject to volatility decay due to its leverage and rebalancing, which might lead to a slow bleed in value over time. This could make the put option more valuable over time.
• Implied Volatility (IV) Spikes: If you anticipate more spikes in volatility, holding a put can be profitable, but consider the timing and magnitude of such spikes.
• Hedging with Short-Term Options: To hedge against the slow response of your LEAPS, you might consider shorting shorter-term put options or using spreads to capture short-term vol spikes.

Summary and What to Watch

• Greek Focus: Monitor delta to understand how the option's price might move as UVXY moves ITM or OTM. Keep an eye on vega, especially during volatility spikes, as it could significantly impact your LEAPS.
• Hedging: Consider using shorter-term options for hedging or taking advantage of shorter-term vol spikes to manage risks.
• Price Movement Expectation: As UVXY moves further ITM, expect the put option to start moving more significantly. If UVXY drops closer to your put's strike price or if there is another volatility spike, the option's price should respond more noticeably.

The behavior of your option will become more dynamic as it moves ITM or if there's a more substantial or prolonged volatility event. Therefore, continue monitoring delta and vega, and adjust your strategy accordingly

I guess what I don’t get is why the delta is -44 today for the Put in question but there is no way it is moving 44% of the underlying price move, especially during last week’s price spike. Should delta be considered at all for LEAPS? What would show me instead this probable lack of movement if there is a spike?

What is the option exactly ?

Looks like vega is the greek that has the most influence on longer dated option.

Also they’re not active. It takes volume for the last price to change. Greeks are only indications.

27 months is way too far ahead. You must be the only one involved with it currently ^^

I am not an expert in option but there might simply be no market for it to this date.

UVXY Jan 26 P 26

I’m not sure if any of the Greeks, first- or second-order, are very useful for LEAPS. Maybe one of the Greeks experts on here knows the answer. Might be a good academic research paper: “Do Greeks Matter For LEAPS?”

Looks like your option has very low greeks and is definitely dominated by implied volatility.

Therefore UVXY might have gone down lately but the implied vol might not have changed much.

That’s my take on it (+ low volume).

Thanks. I wonder why I get a different delta — -44 — on thinkorswim? And -20 on Fidelity.

They are priced on the vix future, so you are not really trading the ETF price. The delta is 0.2 with IB

Edit: mmmm I can't even find jan26 vix.. I don't think is available

The options on UVXY are not linked to the price of the etf, UVXY? Is that what you are saying?

I couldn't tell for sure on this etf, I think that short term the ETF reflects in options, it's designed to be short term, but like for vix options, longer term are priced on their corresponding future.
Although... Vix futures don't seem to go that far in time.
The 0.5 delta on your put is around 65$