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Option Trading Strategies for a Low Volatility Environment

Today the VIX is hovering around 12 to 13. The VIX of course is the volatility Index for the S&P 500 or SPX. This would generally be considered a low volatility environment with the VIX at that level. What option strategies work best in this low volatility environment? Volatility tends to return to the mean. So if we are at a low volatility, chances are that the volatility will rise over the near-term. Option strategies that are long volatility or very high risk-reward are best at this time. A good long volatility strategy is the calendar spread or time spread. This involves, of course, selling an option strike near the money, in the near expiration, and buying that same strike in a further out time period. An example would be, selling an option expiring at the December options expiration and buying one that will expire in the January options expiration at the same strike. You can also utilize weeklies where you sell an option that will expire in one week and buy one that will expire in another, that is, your time spread or calendar strategy. Benefits This, of course, benefits from increased volatility and is also non-directional in its price […]