The market barely moved again and the VIX (volatility) fell further reaching nearly 22.
Are the traders in holiday mode (Thanksgiving) or just waiting for someone to make a bigger move in either direction?
Nobody knows, but what we do know is that the VIX at this level is on the bottom of its range of the past two years.
What does that mean?
First of all, the VIX shows the market fear. Lower fear levels mean that the market is not expected to move wildly and it is more of a bullish indicator. However, looking at the chart below, we can see that the fear level tends to spike up regularly, which is a very important factor for options traders. If we use well over 50% of our capital selling options and the VIX jumps up then we can quickly find ourselves in a tough situation. One way to mitigate this risk is to sell options against stocks with high volatility.
What's my trade for today?
#AAL (#AmericanAirlines) doesn't meet the high volatility criteria but I am very comfortable selling $14 put against it every time it goes below $14. It's a cheap and fairly stable stock so even if it moves against me, it doesn't take very long to recover. Also, it barely requires any capital so if the VIX jumps up, I will still have plenty of buffer at my portfolio level.
The stats
Trade Type: Short Put
Strike: $14
Expiry: 16 Dec
Delta: 50
IV Rank: 13.3
Premium: $0.73
Cap Req: $279
Annualised Prof at Expiry: 382%
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.
Closed:
https://www.tycoonitos.com/community/market-comments/market-comments-20221115
Rolled:
None
Let me know what you think.
Perfect trade!
Closed at $0.48 for an annualised profit of 1635%.