The VIX was introduced in 1993, and is used by many as a barometer of investor sentiment and market volatility. It is designed to show the market’s expectation of 30 day volatility. And since volatility is one of the main parameters used to determine theoretical options prices (along with stock price, strike price, interest rate, time and dividends), it’s a good idea to monitor the VIX as you write covered calls against your positions.



All things being equal, higher VIX numbers will allow you to sell your covered calls for a higher premium. For historical comparison, the range of the VIX in 2005 was 10.23 to 17.74. The markets were not as volatile in 2005 as they were today, and covered calls did not yield as hefty premiums as they do today. Today, the VIX closed at 25.78, well above the high range mark of 2005. Selling covered calls in today’s high volatility environment can be potentially very rewarding. In general, I want to be a buyer of options when the VIX is low and a seller of options (covered calls or calendar spreads) as the VIX increases. You can still make money buying options in high volatility (high VIX) environments, but you also have greater risk of the volatility crush, where your options positions decline in value significantly as the volatility of the market decreases quickly.