Trying to profit by trading options when the VIX is high is quite a bit more difficult. Let me explain\u2026<\/p>\n
When the VIX is high, option premiums inflate. That means option buyers are paying premium prices to buy calls and puts. So, it takes a larger move in the underlying stock in order to profit.<\/p>\n
Meanwhile, sellers of calls and puts are collecting a higher-than-normal premium. So, they\u2019re collecting more money up front. And they have a larger hedge against an adverse move in the stock.<\/p>\n
In this sort of environment, traders should be looking to sell options rather than buy them.<\/p>\n
Rarely do we get such a clear example of how the VIX affects option prices as we saw over the past few days.<\/p>\n
When the stock market rallied on Monday and the S&P quickly gained 36 points, the Volatility Index (VIX) dropped nearly 12%. As a result, option premiums dropped as well.<\/p>\n
For example, the SPY February $265 calls \u2013 which closed at $2.28 on Friday \u2013 rallied and closed at $2.86 yesterday. That\u2019s a decent gain, but it seems somewhat lacking given a HUGE 36-point gain in the S&P 500.<\/p>\n
In a low-volatility environment, a 36-point gain in the S&P 500 would usually be enough to double the price of the call options.<\/p>\n
But that didn\u2019t happen. Traders who bought this expensive call option made $0.58 per share.<\/p>\n
Meanwhile, folks who sold put options on Friday did a whole lot better.<\/p>\n
For example, the SPY February $265 puts closed Friday at $5.39. After yesterday\u2019s big rally in the S&P 500, this option closed at $2.41. That\u2019s almost a $3-per-share gain. That\u2019s a much larger profit by selling uncovered puts than traders would have earned by buying calls.<\/p>\n
The ability to sell uncovered put options is an important strategy for any options trader. In a period of increased volatility, traders will make far more money by selling uncovered puts than by buying speculative call options.<\/p>\n
If you want to make money trading the stock market in 2018, then you absolutely need to be able to sell uncovered puts.<\/p>\n
Pick up the phone, talk with your brokerage firm, and tell them you want to sell uncovered puts<\/a>.<\/p>\n It\u2019s likely to be the best-performing strategy in 2018.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n P.S. <\/strong>Even in last year\u2019s low-volatility environment, Delta Report<\/em> readers profited from selling uncovered puts over 20 times. And now, with volatility returning to the markets in such a big way, we’re\u00a0excited to continue putting this strategy to work.<\/p>\n To learn how you can take advantage of this winning strategy as a Delta Report<\/em> member, click here<\/a>.<\/p>\n Today, a mixed bag of trading stories, thoughts on gold, and responses to last week\u2019s stock action\u2026<\/p>\n I really appreciate all of the good info you provide us. I look at your comments several times daily.<\/p>\n Regarding the SPY call\u2026 I got filled at $1.85, bought more at $0.52 and again at $0.15. I was able to sell for a profit at $0.91. The trades worked out well.<\/p>\n I like getting paid to trade. I prefer the bullish put sell recommendations. Thanks and keep up the good work.<\/p>\n \u2013 Dennis<\/strong><\/p>\n<\/blockquote>\n <\/p>\n Thanks for inquiring.<\/p>\n Long story short, one fateful day last July, when I first began to trade options, unbeknownst to me, I blundered big time or so it would seem! For quite some time, long before I started to trade options, I had been trading gold stocks like Agnico Eagle (AEM), Barrick (ABX), and Goldcorp (G) with confidence and success. Typically, I would buy and sell 1000 shares of each gold stock at a time on my margin account.<\/p>\n But, on that fateful day in July last year (or was it June?), I filled in a form thinking that I was placing an order for 1000 shares of AEM (Agnico Eagle). Now believe the unbelievable: without realizing it at that time, it turned out I was actually placing on order for 1000 calls of AEM. I did not realize my error until I checked my portfolio later that night. My broker told me only 47, instead of 1000, calls were filled and I was stuck with them. However, rightly or wrongly, I could not help thinking at the time I was somehow “finagled” into making that error. i.e., I was victimized.<\/p>\n Oh well, it is not unknown that some rogue brokers at times operate in cahoots to “screw” an unwary beginner for their (brokers’) mutual benefit.<\/p>\n Fortunately for me, in the course of time, I was able to recover my $7,000 loss and then some and I look forward to making more money with your help\/guidance. Thank you.<\/p>\n \u2013 Lawrence<\/strong><\/p>\n<\/blockquote>\n <\/p>\n I thought you and others thought silver and gold were going up<\/a>, but that is my biggest loser. Otherwise I am glad to be out of this wild market thanks to you.<\/p>\n \u2013 Van<\/strong><\/p>\n<\/blockquote>\n <\/p>\n Sincerely appreciate Saturday\u2019s Delta Direct<\/i><\/a>.<\/em> You are a wise mentor.<\/p>\n![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
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