My prediction about the VIX jump was spot on (unfortunately). It's been an absolute blood bath at the markets today (and the previous few days). The fact that the SPY is down nearly 9% in 4 trading days is a huge move.
The key risk for options traders in situations like this is the rapid volatility expansion (the VIX jumped up). You might have sold a really wide strangle against a solid underlying but, due to the volatility expansion, the price of options also jump up leaving your account in negative territory.
If the right reserves were not maintained then traders can easily find themselves in desperate situations and either forced to close deals at a loss or roll out to another month much sooner than planned.
On the flip side, when the volatility is high then option traders collect a lot more premium.
So what's my trade for today?
#XLE (#EnergyETF). The price and flow of energy is a massive challenge nowadays globally so naturally the volatility is quite high. I decided to go with a really wide strangle to keep my account safe but still receive decent credit.
XLE Daily Chart
Trade Type: Short Strangle
Strike: $70 / 95
Expiry: 15 Jul
IV Rank: 81.4
Cap Req: $852
Annualised Prof at Expiry: 190%
IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.