THE WEEK AHEAD: WATCHING VIX AND ITS "LITTLE BUDDIES"
With VIX settling at around 10 on Friday, there's little that catches my attention here in terms of pure premium selling. Currently, no individual underlying is up to my high implied volatility rank/high implied volatility standards and neither is any exchange-traded fund. Naturally, I'm beginning to sound like a broken record here. I mean, how many different ways can I describe this protracted low volatility market with descriptors such as the current market's being a "wasteland for premium selling," there being a "paucity of premium-selling plays," or that there is a lack of "sexiness" or "juice" in the market as far as selling premium is concerned. My options are either: (a) torture myself by putting on low probability of profit, low credit received at the door premium selling plays; (b) pursue low volatility strategies such as calendars and diagonals; or (c) wait with mounds of cash (I exaggerate with the "mounds" part) on the sidelines until volatility increases.
To me, option (a) makes little sense here, since I'd be opting for low quality stuff just to have plays on or to "increase occurrences." It may just be me, but I like to have numerous quality occurrences on, not numerous crappy ones, and I guarantee you'll be in numerous low quality premium selling plays if you keep putting them on here and the market keeps doing what it's been doing (going up ... incessantly). This is particularly so if you continue to go nondirectional (i.e., short strangle/iron condor/iron fly) in this low volatility environment and in skewed instruments like SPY, IWM, QQQ, and the DIAs, where having call side risk on has just been a terribly "unfriendly" trade for several months now. That being said, things can change in an instant with an exogenous risk event, which we've been unexpectedly met with on several occasions during the past couple of months -- only to have the dip buyers promptly wade back in, lending credence to the fiction that we're in an endless bull market handicapped by an inability to undertake any meaningful correction such that the stories regarding this being a "bubbly" market valuation-wise entirely evaporate.
I've done a few option (b) trades (SPY, IWM, GLD calendars), both small and with plenty of time to work out. But for them, I'd be almost entirely flat here. To a certain extent, I regard them as largely "engagement" trades with limited likelihood of huge gains, but also limited likelihood of huge pain, since they were put on for debits, my risk is defined, and I pretty much know how much is on the line should they not work out. In other words, they're just there to keep me from going entirely bat crazy bonkers while I wait for sufficient volatility to take advantage of the market with my go-to strategies -- short strangles, iron condors, and iron flies. The calendars beat a poke in the eye with a sharp stick, but not by much.
Barring productive market behavior in SPY et al., I'm basically watching VIX here, along with its "little buddies" -- VXX, UVXY, and SVXY -- for an opportunity to add something there in the short-term or farther out in time. (See Posts below).
To me, option (a) makes little sense here, since I'd be opting for low quality stuff just to have plays on or to "increase occurrences." It may just be me, but I like to have numerous quality occurrences on, not numerous crappy ones, and I guarantee you'll be in numerous low quality premium selling plays if you keep putting them on here and the market keeps doing what it's been doing (going up ... incessantly). This is particularly so if you continue to go nondirectional (i.e., short strangle/iron condor/iron fly) in this low volatility environment and in skewed instruments like SPY, IWM, QQQ, and the DIAs, where having call side risk on has just been a terribly "unfriendly" trade for several months now. That being said, things can change in an instant with an exogenous risk event, which we've been unexpectedly met with on several occasions during the past couple of months -- only to have the dip buyers promptly wade back in, lending credence to the fiction that we're in an endless bull market handicapped by an inability to undertake any meaningful correction such that the stories regarding this being a "bubbly" market valuation-wise entirely evaporate.
I've done a few option (b) trades (SPY, IWM, GLD calendars), both small and with plenty of time to work out. But for them, I'd be almost entirely flat here. To a certain extent, I regard them as largely "engagement" trades with limited likelihood of huge gains, but also limited likelihood of huge pain, since they were put on for debits, my risk is defined, and I pretty much know how much is on the line should they not work out. In other words, they're just there to keep me from going entirely bat crazy bonkers while I wait for sufficient volatility to take advantage of the market with my go-to strategies -- short strangles, iron condors, and iron flies. The calendars beat a poke in the eye with a sharp stick, but not by much.
Barring productive market behavior in SPY et al., I'm basically watching VIX here, along with its "little buddies" -- VXX, UVXY, and SVXY -- for an opportunity to add something there in the short-term or farther out in time. (See Posts below).
