The VIX (volatility) has been around the current level since November last year so it makes me wonder if we are going to see the volatility jumping up again sometime soon or we will see it going further down.
The VIX is mean-reverting and the mean is around the 15 level so technically speaking we are still in a higher volatility environment but when we look at the volatility of S&P500 then we can see that the volatility is actually very low.
Low volatility makes options trading more risky and we have to be more selective of the trades we do.
Because in low volatility the prices don't fluctuate much, therefore the option prices are lower and the 1 standard deviation, which covers 68.2% of cases, moves closer to the actual price. So to collect the same amount of premium as in the case of high volatility environment we have to select strikes that are closer to the actual price, which in itself is not a problem until the volatility expands.
For those, who are new to my daily market comments, I place and document one trade a day with the objective of helping everyone learn how to trade options.
What's my trade for today?
#MRVL (#MarvelTechnology) strangle with a slight bullish skew, which means that my put strike is closer to the current price than my call side as I am thinking that the price will go a bit higher in the short-term.
Trade Type: Short Strangle
Strike: $32.5 / 45
Expiry: 17 Feb
IV Rank: 23.7
Cap Req: $326
Annualised Prof at Expiration: 383%
Watch more detail here:
Let me know what you think.
Closed at $0.83 for an annualised profit of 585%.