OPTIONS Trading…. Step aside and wait for a Reversal

I wrote to my forum (http://options.forum2u.org/) about 10 days ago and recommended readers to cover long position (Options Spread – Bull Put) since SPY would break down SPY 135, which was the support line. My argumentation was the fluctuation of Oil price during the past weeks and SPY experienced lower high and lower low on technical indicator.

On my surprise, the VIX did not get higher despite the downturn and writing options was not my strategy on this situation. It was very hard for me to find acceptable risk-reward on writing options since market was fluctuated but the VIX was low. Since the implied volatility/options premium that market maker priced did not corresponding with the actual situation….. so it was time for me to step aside (I converted most of my position to cash).

Up to this writing, the index has been depressed for 4 days in a row. It was really bearish condition and it could reach the lowest point SPY 126 like in November 2007. My advise is don’t take any bottom before a good technical indicator confirmation. To know this, I would look at multiple time frames graph and ensure there is no conflict one to the other. I also usually look for good stocks that depressed obecause of negative news and fears surround the whole situation. If the VIX is not so high, buying long term Options with deep in the money can be a choice (this will show you that an Options Writer can also do straight Buy Options to leverage profit).

Time to go for GOLF and COLLECT your OPTIONS Premium

It has been quite sometime I have not updated my blog. Do you know why……? Well, I’m too busy to do other things and not concentrate on market movement. One of my friend asked me how can I trade Options without looking at my position closely? I told him that no matter where market moved, my position was safe and I collect premium options everyday. Even… I collected options premium during my sleep and weekends !

Current market movement is on “Trading Ranges”, means it is going up and down on a range bound by strong resistance and support line. This condition is really heaven for traders who have style “Market Neutral” and/or “Write Options” on their portfolio. After wild movement on the past months, market is on consolidation phase. A relatively good news or bad news usually made the market went up and down a bit, and no wild volatility.

VIX or volatility index on the S&P is relatively low, ranging from 18-20. I believe the VIX will be on this range for about couple of months. This means, I still can relax and get the money every month without concentrating to the market.

My friend asked me: “how do you that? Well, it is easy if you know the methodology. On Market Trading Range movement, I did not go for bullish nor bearish. I have many combinations of Vertical Spreads, Iron Condor, Calendar Spread, Unbalanced Butterfly and even Sell Put if I like the stock. I aligned the “Delta” position as neutral as possible so that market movement did not hamper my profit and loss position. Since the VIX is low, the entry point must be precise, means I will sell / write options if VIX is on increasing trend to get “rich premium” on that spot. If the VIX went down, the options that I sold were certainly profitable already.

If the VIX is very low, I went for spread positions that help me/ increase in value when volatility is increasing. By doing this, I hedge myself no matter volatility is increasing or decreasing.

Other most important thing that I have to do is to watch the overall portfolio. I need to adjust properly if my “Delta” is far too positive or negative. This is what I call “Risk Assessment” toward a portfolio where every professional trader must understand this. Ok, I hope you can take profit out of the market on this trading range market and I will continue my other activities…..