Who doesn’t love to trade? If you are reading this blog, you probably do. The market has been crazy volatile for months. However, it is hanging in there for now and has refused to move much lower. Directional trends have been difficult to capture, and implied volatility levels have been painfully low. What does an option trader do?
Consider this: You have a bearish trade on, and after one day it is doing pretty well and you are a tad profitable. You don’t have any intention to sell it after one day, but the next day comes and the market reverses, putting the trade and your profits back into negative territory. You don’t want to be forced to take profits for a position you have held for less than a day, but this market is so volatile it sometimes forces a swing trader to do so. Still, no one is forcing you to trade. And if you choose to trade, longer expirations and more patience may be required.
Looking for Time Spreads
In MTM’s Group Coaching class, we have been buying time spreads (calendars and diagonals) to take advantage of the IV skews that have been prevalent for option traders. Being profitable on time spreads is usually a result of being patient. Look for other options than vertical debit and credit spreads.
Of course, if you like to sell premium, as many investors do, with cash-secured puts and covered calls, this market is still good for that despite the low premiums. Here is the gist: If you are not comfortable with selling premium, day trading or using strategies you are not familiar with like time spreads, don’t trade. No one is making you trade except for yourself.
Senior Options Instructor