Extremely Low Volatility Conditions
VIX in 10 to 12 range.
Similar to 2017 Q1 in SPY:
* Recent run up in stock prices
* General complacency
* Rich valuations (based on P/E and Market Cap to GDP)
* Market is frustratingly range bound
Extremely Low Volatility Case
Implications
* Low option premiums => selling options is not rewarding
* Stocks may continue to rise, but risk reward is not favorable
* UVXY decays rapidly & SVXY continues to rise* However, risk of sudden market drop and volatility explosion is high
Preferred Actions
* Take profits and raise cash
* Buy options rather than sell options
* Position for black swan or unexpected shocks to the market
* Try to profit from continued rise of the markets & subdued volatility while it lasts
* Buying options should be sustainable because most of them will expire worthless
Buy Options
* Accumulate weekly out of the money puts and calls over time with different expiration dates
* Possible ETFs to buy options on: SPY, DIA, IWM, & QQQ
* Buy puts on the ETF that outperformed & calls on the ETF that underperformed?
* Buy calls when the ETF is down on a given day & puts when the ETF is up to further reduce costs (works because market is range bound)
Funding Option Buying - Strategy 1
* Keep 25% of the portfolio in index ETFs (SPY and an international ETF)
* Every 1% rise in these ETFs, take the profit and use it to buy options
Funding Option Buying - Strategy 2
* Sell diagonals
* Create option triangles over time
* Accumulate longer dated out of the money options over time
Funding Option Buying - Strategy 3
* Sell weekly UVXY near the money calls but cover with a longer dated out of the money call
* Also sell a longer dated deeply in the money put on UVXY spread to take profit when UVXY spikes suddenly
Funding Option Buying - Strategy 4
* Sell weekly SVXY put spreads or diagonals
* Protect with out of the money longer dated long puts on SVXY