We had a bit of a market crash this week. 100-handle swings back to back…. this isn’t unprecedented action here, but the magnitude always surprises me a little bit.
I think the initial selloff was a function of treasury yields rising, but what really broke the market were too many players in the short vol landscape. XIV collapsed, and VX futures jammed from 16 to 35. Spot VIX was the highest reading we have seen in years.
This is good news for us. Because there were so many new investors in the short vol landscape, it was being reflected in option premiums. Hopefully we start to see wider price ranges in underlying stocks, and higher premiums to sell on our spreads.
Right now it’s a good time to focus on the most liquid stocks and indexes, as everything is correlated during high volatility movements.
Trade #1: SPX
If we see a squeeze back to the “crash day” high, then sell some call spreads. THIS IS IMPORTANT SO PAY ATTENTION!
Price MUST hit this within the next 3 trading days. If too much time is spent consolidating, then that price level will not be a good shortable area because too much energy can be spent on a rip higher. If we see a quick move to 2750 then it’s fadeable… if we don’t see a quick move then it’s not fadeable.
Trade Setup
Expected Price: 2750
Sell to Open SPX Mar 2840/2845 Call Spread
Tier 1: Enter at 0.70, Exit at 0.20
Tier 2: Enter at 1.00, Exit at 0.50
Tier 3: Enter at 1.30, Exit at 0.60
Trade #2: GLD
Looking for a test of all the gap fills and the rising 50 day moving average.
Trade Setup
Expected Price: 123.60
Sell to Open GLD Apr 118/115 Put Spread
Tier 1: Enter at 0.32, Exit at 0.05
Tier 2: Enter at 0.47, Exit at 0.17
Tier 3: Enter at 0.62, Exit at 0.32