Volatility is back and we, as options sellers, have a wonderful opportunity ahead of us.
Below I present three trades.
All the trades have probabilities hovering around 82% and a duration of roughly 40 days.
The difference in each trade is the level of volatility.
Notice how volatility impacts each trade and you’ll quickly understand the opportunity you have in front of you right now.
On July 30, with SPY trading at $298.80 and the VIX hovering slightly above 12, we had the opportunity to make $0.48 or 19.0% over the next 43 days.
Our probability of success on the trade . . . 81.48%.
With volatility hovering around historic lows for this trade, this was an options seller’s worst nightmare. Low levels of volatility mean investors are complacent. As options sellers, we despise complacency. Chaos is our friend.
As a result, we are only able to make 19% over the next 43 days and our margin of error (the difference between our chosen strike, in this case 308, subtracted by the current share price) is $9.20.
On Aug. 8, with SPY trading at $293.62 and the VIX sitting at 16.91, we had the opportunity to make $0.63 or 26.6% over the next 43 days.
Our probability of success on the trade . . . 82.19%.
At 16.91, volatility wasn’t sitting at near-term highs, but was still in a nice place for us to make some decent profits. As long as I can make around the 25% with over an 80% probability of success, well, I’m happy.
I would love to see volatility stay at these levels, if not higher . . . and would be perfectly happy trading at these levels in perpetuity.
The Best of Times
On Aug. 5, with SPY trading at $283.82 and the VIX sitting at near-term highs of 24.59, we had the opportunity to make $0.68 or 29.3% in only 39 days.
Our probability of success on the trade . . . 81.81%.
Yes, when the VIX sits above 20, especially around 25, like in this situation, we are experiencing the best of times.
When volatility sits at normal to heightened levels, trading becomes easier for a variety of reasons. We can make more money with much lower risk. It is the perfect environment for our trading approach.
Now is the time to sell premium . . . don’t wait . . . because it doesn’t get much better. Click here to learn one of my favorite ways to profit from volatility.