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).
Usually hate for the weekend to come as then cannot trade options; would be nice for things to pick up and keep it that way! Have been dong some Ecalendars targeting the 30-45 day pre earnings pop in volatility that some stocks do. Have not see it graphed elsewhere so I use marketchameleon.com implied vol link on left side towards bottom of most pages enter symbol at top right. Those that have a clear "gear tooth" jump, over 100k option volume/day and are high priced to let a calendar pay a bit are candidates (just for first time placed one on AMD 3off, I usually do one contract only). So far, keeps it interesting, does not make a lot of money but have not lost either. :-)
Tom1trader
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@Tom1trader, Should add I open at beginning (hard to catch) or just before the bump in IV, long leg 1st liquid or monthly after E-announce, short leg close in (9-15 days) if weeklies juicy at all. I check to be sure good Theta before commit and try to have some decent roll opportunities. Always closed within a few days of earnings.
NaughtyPines
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@Tom1trader, Neat. I do know a few traders who look to put on plays to take advantage of vol expansion (instead of contraction) running into earnings, but haven't devoted much time to it myself ... .
Tom1trader
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@NaughtyPines, Have gotten in and out with good and poor timing and more/less liquid overall small gains - starting to seem like timing is big and stands to reason high liquidity - to minimize slippage and price (if can find) might work out well.
minkusm
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It's been a frustrating year, to say the least. For now I've decided to join the longs, I have very few short volatility plays on at the moment. An Iron condor "Jeep Trade" on SPX and RUT, I sold call spreads on UVXY the other week, and well, that's it. Long SPY, QQQ and some tech stocks are my longs, and I do some earnings trades to try and keep myself engaged.
NaughtyPines
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@minkusm, Exactly. Mere SPY, QQQ, DIA short puts would have been fine in this environment, in spite of the fact that we had some abrupt downturns. It can't last forever, but it's certainly lasted quite a long time ... .