Listen to the audio version of this article (generated by AI).
Managing Editor’s Note: Today, we’re hearing from our contributing editor Mike Burnick in his weekly feature.
Mike has over 30 years in the investment and financial services industry – from operating as a stockbroker, trader, and research analyst, to running a mutual fund as a registered investment advisor and portfolio manager, to being Research Director for the Sovereign Society, specializing in global ETF and options investing. And he’s been senior analyst at TradeSmith for three years, running Constant Cash Flow, Infinite Income Loop, and Inside TradeSmith.
Here’s Mike…
This Stealth Bear Market May Soon Be Over
BY MIKE BURNICK, CONTRIBUTING EDITOR, MARKET MINUTE
The options market is telling us to be sellers of options not buyers right now.
And that means one of my favorite option strategies is now paying off.
Our new Options360 Market Indicators page displays valuable data about market health, trend and sentiment, along with key volatility indicators. And one of these shown below says “it’s time to sell premium in options.”
Options360 members can login and view our Options Market Indicators, including the IV vs. HV indicator above.
This indicator compares implied volatility (IV) – that’s what the market expects price swings to be – with historical volatility (HV) or how much prices have actually moved lately.
- When IV is lower than HV – a ratio below 1 – options premiums are cheap compared to recent market action. That’s good for option buyers.
- But when IV is higher than HV, as it is right now, option premiums are richer than what’s justified by market moves. And that’s great for option
It’s currently sitting at 1.27. That means the market may be overpricing option premiums relative to the risk.
That’s when it pays off with extra income to be a seller of premium, one of my favorite income strategies.
Bottom line: This is a great time for option traders to consider premium-selling strategies like selling covered calls, cash-covered puts, or bear call spreads to collect the extra premium that’s available right now.
Good investing,
Mike Burnick
Contributing Editor, Market Minute
P.S. One of Jeff’s favorite income strategies is selling puts. His last trade in his entry level trading service, Jeff Clark Trader, saw a 75% gain from this strategy in just four days.
In fact, he has a whole section in his Options Trading Master Course dedicated to teaching his readers this
In fact, he has a whole section in his Options Trading Master Course dedicated to teaching his readers this strategy. Learn more right here.