Options Trading Webinar: What to Do When Volatility Shrinks
Since the market dipped in August, volatility levels have been very high. They’ve gone down a bit here and there, but they remain elevated due to fear around interest rate increases. The Fed hasn’t explicitly stated when or by how much rates will go up, and that indecision has everyone on edge. However, volatility will eventually go down, and when it does, you need to be prepared.
During this webinar, I discussed various options trading strategies you can use when volatility shrinks. One of the best ways to take advantage of volatility is to sell premium, especially when volatility spikes higher – as we saw happen on Thursday, December 3. On this day, the VIX rose 14% and finished in the top end of the range. This movement has the potential of being a spike peak, and when that happens, we see volatility decline sharply. I gave a great example of selling volatility with the chat room play AVGO, which we did the prior day. In this case, selling the 140/130 put spread turned into a nice winner.
So, what are the risks? Certainly they are there, but this approach is sound and reliable when we see patterns develop. We are not seeking slam dunk trades; instead, we look for the highest probability ideas that can work with the leverage options give us.
This Week’s Market Action
Momentum continues to be bullish, but don’t get too excited – the McClellan Oscillator is showing nearly oversold conditions. Turnover has been high and breadth has been lousy; this two-day pullback of about 50 SPX handles has been somewhat nasty. Additionally, price action has been uneventful (except on the Russell 2k), sentiment is rather neutral, put/calls are on the rise again, but the VIX is above moving averages – which also means the markets are vulnerable to downside action.
Watch Bob Lang’s Options Trading Webinar on Volatility
Watch the webinar to hear Bob Lang’s strategies for trading when volatility shrinks and get an update on this week’s market activity.
If you love the insights you gained in this webinar, don’t miss your chance to join us live. Each week I host a FREE options trading webinar during to discuss recent market action, current plays and charts of interest, along with the trends that may affect future action. Join us live and get your chance to ask your own trading questions!
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