Market volatility is back . . . and I couldn’t be happier.
The last time we saw this type of situation we were able to lock in 309.9% in profits.
When fear moves back into the markets, we, as options traders, have an opportunity to make significantly more money.
Just recently the VIX, otherwise known as the investors’ fear gauge, was nearing historic lows . . . again. When the VIX falls to these levels it just means that there are high levels of complacency in the market. As a result, options traders, particularly those who use high-probability options strategies, have a difficult time finding trades . . . and the trades we do find aren’t paying us the type of returns we prefer.
And that’s OK . . . at least for short periods of time. In fact, it is to be expected from time to time.
But now market volatility is back, and we have a tremendous opportunity ahead of us.
I decided to compare the option prices on the S&P 500 (SPY) from last week to this week.
To be consistent, I wanted to look at the strikes with same probabilities from last to this week.
Last week at the 80% probability level the SPY puts were trading for $1.81.
Puts from July 26, when the VIX was reading 12.
I also wanted to look at the call side of things as well. Call prices at the 80% probability level were roughly $1.14.
Calls from July 26, when the VIX was reading 12.
So, how do those numbers compare with today, when the VIX is hitting almost 19?
Well, as you can see below, the put prices at the 80% probability level are worth $2.14, 18.2% higher than the puts at the same probability level from last week.
Puts from Aug. 2, when the VIX was reading 18.86.
What about the calls?
Well, as you can see below, the call prices at the 80% probability level are worth $1.52, a staggering 33.3% higher than the calls at the same probability level from last week.
Calls from Aug. 2, when the VIX was reading 18.86.
Moreover, the range of the strikes (286 – 312) of SPY from last week was 26.
What about this week? The range (270 – 304) is 8 strikes more at 34.
So, we have the ability to create trades with higher prices and higher margins of error at the same probability. As I said before, this equates to significantly more trading opportunities that pay significantly higher premiums. A perfect environment for our strategies.
Thank you, Mr. Volatility!