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Scalping Some Financials Skew

With market volatility on the rise, we are setting up some weekly put trades in Goldman Sachs.

The following option trades have weekly expirations, not monthly. WEEKLYS are options that are listed with approximately one week to expiration.

Here's some info from the CBOE on weekly options that might prove useful.

With market volatility up on shaky economic news, the skews in the financials are widening (downside puts are getting more expensive relative to at-the-money (ATM) puts). The weekly options in particular should have a steeper skew, but this phenomenon is more pronounced under the current market conditions.

Here is the Livevol Pro Skew Tab for Goldman Sachs (GS) - Get Goldman Sachs Group Inc. (The) Report:

GS Skew
Source: Livevol Pro

View Chart

I've highlighted the ATM puts in the August 27 weeklies (which expire tomorrow) and the 150 puts in the September 3 weeklies, which just started trading today.

I'm generally bearish on the Composite Operator (GS), but I want to scalp some weekly skew.

Trades: Buy to open 1 GS September 3 weekly 150 put for $6.40, sell to open 2 GS August 27 weekly 145 puts at $1.50 and buy to open 1 GS August 27 weekly 140 put for $0.18.

The total debit is $3.58. Individual prices don't matter that much, just try to pay less than $3.60 in this spread.

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Expect more selling next week around the long September weekly put, or a close tomorrow on a tightly traded market.

At the time of publication, Ophir Gottlieb held no positions in the stocks or issues mentioned.

Ophir Gottlieb is managing director and head of client services and algorithmic trading at the financial data services company Livevol. He has worked as an equity option market maker and prop trader on the NYSE ARCA exchange floor since February 2008. Prior to working on the exchange floor, he worked as a structurer on the Countrywide trading desk and before that as the director of client services and research for the quant modeling firm Audit Integrity.

OptionsProfits, a new provider of options news from TheStreet, educates investors and acts as a catalyst for trading.

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