With $VIX still holding above 50 and picking a direction is a crapshoot here, I'm still on the hunt for delta-neutral premium selling opportunities.
The way I do it is I scan the most liquid ETFs out there and rank them by volatility. And then I look for evidence of sideways action forming, or at least some very clear risk management levels to lean against.
Options premiums remain elevated in this market. This continues to put me on the hunt for premium selling strategies in the most liquid ETFs.
One of the ETFs showing the highest volatility appears to be starting to settle into a range. And we can sell options very far away from current prices which gives us a lot of wiggle room.
As markets start to (relatively) calm down, trading opportunities with clearly defined risk management levels are once again starting to reveal themselves.
One such opportunity is presenting right now in the semi-conductors space.
On Monday, I laid out my plan for entering into $SPY Iron Condors steadily throughout the week. I entered into the final Iron Condor this morning and wanted to give you a little update on where we stand with them.
I'll start by saying: this is no ordinary week. But you knew that.
If you are sitting on the sidelines, waiting for all this craziness to subside, that is not a bad idea at all. There is no reason to put our money at risk if we can't get a handle on our own emotions during this highly uncertain time.
That said, for those who are willing to wade into these choppy waters with me -- these insane premiums offer us the ability to sell premium FAR away from current prices. I'll share with you my simple game plan for this week.
Risk management has to be our number one focus right now. This is no time to be lazy, hoping, or praying.
Yes, if you're willing to wade in carefully, there can be some great opportunities for premium selling. But even then, we still have to be extra vigilant in protecting our capital.
I bring this up because I received an email from someone recently who didn't follow his rules, and now finds himself severely underwater and wondering what to do next. We've all been there. Something unexpected happens, and now we're like a deer in the headlights too frozen with indecision and unwilling to make any move whatsoever because we're afraid we are going to compound the situation for the worse. It sucks.
Here's the situation my friend finds himself in. Let's learn from this.
Yesterday, $VIX printed the highest level we've seen since the financial crisis in 2008. That's a twelve year high.
It exceeded the "government shutdown" spike of 2011, the Chinese stock market scare of 2015, the 2016 election fear mongering, and the Brexit noise.
Editors note: The chart police (aka, JC) would like me to point out that this is a weekly chart and the last bar on this graph is not complete. The horror!
We can point to a couple big reasons why volatility is spiking (Coronavirus, oil crashing) and a few smaller ones (we're overdue, debt, whatever....). But none of that really matters. Only price pays, right @Alphatrends?
Things are whippy out there. And volatility is elevated to levels we haven't seen in quite a while. This is no time to be a hero. This is the time to focus on edges and putting them to your advantage.
I know it's sexy to be a buyer of calls if you want to be the hero bottom caller. Similarly, it's equally sexy to be a holder of long puts into a market crash. But this is not the time to be initiating new long calls or puts positions. The premiums you'd pay are so high right now that you could totally nail the direction, but you'd be swimming upstream against an eventual mean-version in volatility pricing.
But this does not mean we pick up our ball and go home. We options traders have options!
In this environment, we're looking for plays where we are net sellers of premium. With premiums this juicy, it would be irresponsible to do anything else.
