NaughtyPines

RESIST THE URGE -- WHAT TO DO IN A VIX SUB-25 ENVIRONMENT

INDEX:VIX   CBOE Volatility Index
Naturally, one day of plunging volatility ( VIX             - 7.96% to 22.55) is nothing to get concerned about. It's great for the premium selling trades you have on now (which benefit from a volatility contraction), but becomes concerning when we have something of the sort that occurred between mid-March and the end of August when sub 20 VIX             made squeezing premium out of index ETF setups fairly unrewarding.

At this moment in time, I have plenty on to keep me busy in index ETF trades between now and the November monthly expiry, so I can afford to wait a substantial spell here for time decay to work its magic on what I've got on now. The hardest part, however, is to resist the urge to put on my weekly mechanical index setups until VIX             pops its ugly head back up above 25 or so. There is nothing worse than putting on an index ETF premium selling setup in a low volatility setting only to have volatility pop like it did at the end of August; sure, those trades eventually work out if they've been well setup from the get-go or if you effectively roll, but being in an intratrade drawdown due to a volatility pop is less than ideal, to say the least.

There are, naturally, always alternatives to selling premium in index ETF's.

If it's earnings season, do high volatility earnings plays in individual underlyings. Keep these particular plays sufficiently small so that you have enough powder dry to take advantage of a broader market volatility pop.

Look at sector ETF's (like SPDR's), commodity ETF's (like SLV             , GLD             , USO ), currency ETF's (like FXE             ) for other premium selling plays.

In short, go where the volatility leads you ... . The general rule of thumb is to look for 70+ IVR             (52-Month ThinkOrSwim) in individual underlyings and 35+ in broader market ETF's, although higher is always better ... .
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