Options Strategy for trading Increase in Volatility

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There are times when option IV goes down, market VIX also languish in lower band indicating low fear i.e. complecency in the market. In such situation, option premium falls down and hence the Short Options strategies do not collect high premium.

But what next, these condition are perfect setup for forthcoming days of high volatility when VIX will go high, and option premium will also rise. So what if we buy options now and wait to sell them when volatility increases. It is difficult to say when the volatility will increase, hence we got to ensure our position against the time decay.

Here are some of the strategies that are suitable to use in low IV environment and keeping them for expected rise in volatility.

Long Straddle – Buy 100 CALL + Buy 100 PUT

Long Strangle – Buy 105 CALL + Buy 95 PUT

Back Spreads (either created by Calls or Puts) – Sell 100 CALL  + Buy two 105 CALL

Short Butterfly – Buy 95 CALL + Sell two 100 CALL + Buy 105 CALL. (this can also be created with Puts)

Short Condor – Short Strangle with a Long Strangle with strikes beyond the short strangle stikes. In other words it is combination of Long Call Spread + Long Put Spread.

Long Christmas Tree   -  Sell 100 CALL + Buy 105 CALL + Buy 110 CALL

Happy Trading

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