How & Why I’m About To Enter Several New Options Trades

The VIX is currently 30.81. Just a few weeks ago the VIX was 12. That’s how fast things happen, and this is exactly what I’ve been patiently waiting for.

I only have 6% of my capital deployed in the market at this very moment. My gut was telling me there was a big move coming, and we’re in the midst of it. With the VIX at these levels I fully intend to deploy a significant amount of capital. My goal is to take the 6% deployed to at least 25% by days end, and 40%+ by the end of the week.

How will I go about doing this?

I’ll focus on credit strategies. Jade Lizards, Short Strangles, Naked Puts, Naked Calls, Iron Condors, Bull Put Spread, Bear Call Spreads, Short Straddles, Ratio Spreads. Anything that involves selling premium.

How will I choose strategies?

The list above is in order of most favorite strategy to least favorite strategy. That said, I always choose my strategic approach carefully. I’ll ask myself “which strategies may compliment this underlying well?” Then I’ll analyze all that I feel are valid and choose the one I think is best for that given underlying. I’ll avoid having too much capital exposure in any given strategic approach, so once I have say 20% allocated in Short Strangles I’ll stop entering Short Strangles.

How will I choose the underlyings?

Very carefully. The underlyings must have liquid Options. The underlyings must have IV Percentile as close to 100 as possible in this particular environment. There must be a wide variety of underlyings (strategic diversity and underlying diversity are both very important). If underlyings are highly correlated, the strategic approach should vary (for example I will be careful not to enter a bunch of Short Strangles in SPY and IWM and QQQ).

How will I allocate?

I’ll likely allocate 1-3% per underlying, with a tendency to be on the lower end of that scale with individual stocks & commodity ETF’s and higher end of that scale with diversified ETF’s. I may expand that to 5% for SPY or SPX (or combination of the two). The strategies I favor most will not exceed 20% of my capital per strategy, with the lower probability of success strategies being more in the 5-10% range. For example, if I have 80% of my net liq deployed, 20% may be Jade Lizards, 20% may be Short Strangles, 10% Naked Puts, 5% Naked Calls, 5% Iron Condors, 5% Bull Put Spreads, 5% Bear Call Spread, 5% Short Straddles, 5% Ratio Spread. This accomplishes a portfolio containing strategic diversity and underlying diversity.

What are my beta weighted delta intentions?

I’ll beta weight to SPY. I’ll attempt to stay as delta neutral as possible, but given this recent move I’m comfortable with some positive beta weighted delta here.

That’s it! Just thought I’d share my views and approach. Time to get started, hope this was a valuable share.

Market Thoughts 9/9/14

I prefer premium selling strategies. My criteria for entering new trades is strict, and coupled with the low volatility environment in the market there have been few opportunities for several months.

Times appear to be changing a bit. I have kept my fingers on the pulse of the market daily and am beginning to feel optimistic about premium selling opportunities for the first time in many many months.

EWZ and FXE are both showing great potential with IV spiking significantly in the past week. I’m ready to pull the trigger on them, likely tomorrow.

TLT has some potential with IV Percentile just above 50. It’s nowhere near as attractive as EWZ and FXE, but I may sell some Calls considering my bearish bias at these levels.

YHOO IV continues to hold strong. I am currently in a bearish jade lizard, but have room for more size in YHOO. I may add, but sticking with my current position for now as the Alibaba headline risk does scare me a bit.

INTC is on my radar and I’m very close to a play in there.

To sum it up, there are several names that are interesting or close to interesting. Options Strategy Alerts members should expect a nice uptick in entry activity this week and next.

Here’s a look at a few different volatility measurements. Click each and read the short caption associated with the image to view my thoughts. The gray ranges represent where I’ll be willing to increase capital exposure in my credit strategies.

Is Volatility Back From Its Vacation?

It has been a terribly boring few months for premium sellers like me. Limited opportunity led to very little usage of available capital (net liquidity). There have been a few trades here and there, but most felt forced and most resulted in a small capital loss.

On Tuesday I put on the first trade that I have felt good about in a while. It was a credit spread in IWM. Kept size small since the implied volatility in IWM is below my typical criteria metric, but the trade looks good so I put it on.

I am getting the feeling that I’ll be back in the game in a big way very soon. With Tuesday’s down move, yesterday’s slight recovery, and today’s huge bear gap open I think we’re onto something. Couple that with VVIX showing strength on down VIX days a few times recently (possibly indicating Trader’s are expecting the VIX to pop soon) and major relative strength in RVX which the other volatility indexes may catch up to, and there may be some bumpy roads ahead.

For the sake of my engagement and earnings potential in 2014, I sure hope all the signs I’m seeing and my gut feeling are correct.

Here’s to volatility! I sure would love to see you come back, you’ve been on vacation long enough!

How I would deploy & allocate $100,000 with standard margin using Options only.

Cross Referencing IV Percentile (aka IV Rank) with an Implied Volatility Chart

Strong performance so far in 2014 for our Options Strategy Alerts System. 87.5% win ratio!

Strong performance so far in 2014 for our Options Strategy Alerts System. 87.5% win ratio!

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