ATM IVs of silver of 1-3m expiries are at 23-25%, while bullish delta risk reversal flashes higher positive numbers that signify OTC bullion is more concerned about upside risks of silver.
If IV is high, it means the market thinks the price has a potential for large movement in either direction.
Vega is generally larger in options which have the longer time until expiry, and it falls as the option approaches expiry. This is because an increase in IV is more beneficial for a longer term option than for an option that would expire in shorter tenors. The Vega is at its maximum when the option is ATM and declines exponentially as the option moves ITM or OTM.
Although the momentum in intermediate term bull trend is slightly reduced, but from a last couple of weeks regained the strength amid growing concerns over global risk sentiments and investors contemplating bullion avenue as safe havens, for September delivery eased 0.06% to $19.862 a troy ounce.
Hence, as shown in the diagram, hence, we recommend initiating longs in 2 lots of 1M ATM +0.51 delta call, and simultaneously short 1 lot of ITM call (1%) with comparatively shorter expiry in the ratio of 2:1.
So, trading option spreads in different strikes allows the traders in many tricky market scenarios and likely to fetch positive cashflows.
The lower strike short calls seems little risky but because IV responds adversely, the likelihood of options expiring in the money is very less and it finances the purchase of the greater number of long calls (ATM calls are reasonably priced, so we loaded up with the weights in the spreads) and the position is entered for reduced cost.


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