Now What?
Well, you don’t need a chart to tell you volatility is percolating.
With the dip two weeks ago, you can see (again) options atility kind of jumping ahead of itself. But the market has officially grown into the added premiums. It’s also grown into the VIX futures marts as the VIX itself is now above the March future. The natural inclination is of course to sell the volatility spike. So let’s say you sell SPY strangles here, we’ll say March 102 puts vs. 110 calls. Here’s the issue. If the market keeps getting plowed, volatility will make new highs, meaning your March puts will both go up intrinsically and with the volatility kick. Conversely, you’ll crush them on a similar magnitude move on the way up as the VIX likely heads right back to 20. So a pretty delta neutral play like this has a clear upside preference.
What I’m trying to say is remember that sort of thing while trading within a volatility breakout. And it holds for options buys too. OTM calls are a cheap dollar/low risk way to speculate on a lift, but they will potentially underperform on a lift. Same thing in reverse for OTM puts, if you need (or want) to own some, don’t fret at the price you’re paying. If you’re right, you’re REALLY going to be right.
