I have had more than one option mentoring student ask recently me what is going on with volatility. As I have stated several times, I continue to be shocked by the brazen put selling that continues to go on. I am not sure where it stops. I thought it was 1300...it’s not. I thought it was 1275...it’s probably not. It might be a 1250 break before we see a true increase in IV.
Today, despite the scary end of day sell off, the market was a net SELLER of premium (see below):
I am convinced at some point those selling will have to come scrambling for this stuff, until then traders should:
1. Look at butterflies
2. Look at ratio spreads
3. Avoid condors
Skew is flat and IV is somewhat in the middle of its range. Those that opt to sell condors, puts, or even credit spreads are asking for it. Butterflies make a ton of sense, because traders can sell them and buy a few puts for protection. A true tanking would pay out in the last scenario.
In the end, downside is so cheap that if you have a long position or short premium position and do not cover, you deserve everything you get.
