Geldpress

Volatility (VIX) is still extremely high, but it is coming down quite a bit.  The OptionMonster brothers from Fast Money were advocating selling straddles into this environment.  Selling straddles has infinite risk, and a small potential reward.  For a good analogy on infinite risk, just think of AIG, and all the insurance they sold on credit default swaps.  Look where they are now.

Back to volatility.  Despite the fact that it is deflating, and possibly coming back down to more normal levels, it’s still considered very high by historical standards.  And its still a great time to take advantage of premium selling techniques afforded by a high VIX reading.  But rather than take on infinite risk by selling straddles, the safer way to play with VIX is one of the following:

• Selling covered calls on quality stocks
• Selling naked puts on quality stocks you are comfortable buying at a lower price
• Use the hidden jewel in the shorts strategy, but hedge both sides with covered calls
• Butterfly spreads can be very lucrative in declining volatility markets.
• Iron condors may come back into favor.  Unlike selling straddles, they do have a limited risk, but depending on the number of contracts, that risk can be very significant.  If you don’t have a plan for adjustment ahead of time, don’t trade iron condors.

If none of the above made any sense to you, then stick with this other view of VIX, and the swim wear fashion show.

And for other Geldpress reading, check out:

• Time for cover – the covered call
• Selling Puts For Income, Or As a Cheaper Investment
• Sector rotation and industry ranking information free for everyone
• Hit jackpot returns with a Russell 2000 butterfly spread
• butterfly spreads part 2 and free excel option calculator
• Preparing for and playing the dollar recovery – bye bye euro