Trading Volatility in Fear-Driven Markets

The Short Volatility Playbook

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The mean-reverting nature of volatility makes it a great candidate for a portfolio, especially compared to directional bets, which typically constitute a 50-50 proposition. Hindsight illustrates that since the market bottomed in March 2020, picking market direction has been a lot easier than usual. Based on the performance of broad-market indexes, such as the Nasdaq … Continued

Trading Monster Rallies

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The iShares Russell 2000 Index ETF (IWM) rallied an astounding 18% in November and opened up some new trading opportunities in the process. In the financial markets, price and fear tend to be inversely correlated. When the CBOE Volatility Index (VIX) is screaming higher, that usually corresponds with a sharp pullback in broad market indexes, … Continued

Blue Chips, Short Puts & Corrections

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Since Oct. 12, the S&P 500 is down over 7%, and over that same period, some of the largest capitalized stocks in the United States are down significantly more—a development that has opened up a plethora of new investment and trading opportunities. The list below highlights some of the recent carnage in the large-cap space … Continued

How Volatility Products Behave

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One of the big winners from last week was the volatility space, which received an outsized amount of attention due to the rout in global stock market indices. The VIX, or CBOE Volatility Index, had recently been pushed out of the investor consciousness as it dragged along the seafloor of the volatility landscape, languishing in … Continued

The Magic of 45: Optimal Short Options Trade Duration

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Experienced traders understand there’s no magic crystal ball when it comes to accurately predicting the financial markets. That’s why smart traders focus on approaches that have historically demonstrated a high win percentage, such as mean reversion and the short premium philosophy.  After all, a higher probability of winning at trade deployment reduces trader dependence on … Continued

Trading the Post-Earnings Volatility Crush

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Corporate earnings season is usually a treat for options traders. Opportunities multiply as implied volatility swirls in different directions across a wide swath of symbols.  And while most traders have already identified how they like to approach an “earnings play,” the post-earnings playbook can be less robust. Post-earnings depression for volatility traders can be a … Continued

Unlocking the Hidden Advantages of Sector ETFs

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While many volatility traders target the options of broad market ETFs, such as SPY and IWM, there’s an argument to make for sector ETFs, as well. One constraint with larger cap ETFs, such as SPY and IWM, is that they are high-dollar underlyings that can consume an out-sized amount of capital. And the diversification that … Continued