August 17, 2017

The Perfect Spot for a Credit Spread or Two?

Volatility continues to drop….but for how long?

All of the volatility indicators we follow are in a deep oversold state. It shouldn’t be a surprise given the recent push to new highs in the S&P. However, now we are witnessing an oversold state on almost every time frame…a reading we rarely encounter. Even our longest-term time frame is in an oversold state.

Couple the aforementioned with seasonal weakness and a gap higher today and we can begin to see signs that a reprieve is right around the corner. When I say reprieve I’m not making a definitive forecast that the market is going to push significantly lower, I am just pointing out that the market is going to have a very difficult time rallying further at this juncture so a slightly higher, lower, or sideways market should be anticipated given the statistical tendencies of mean-reversion. I’m essentially playing the odds. And wrapping a high-probability strategy, like various credit spreads (bear call spreads, bull put spreads, iron condors, etc.), around those odds increases my probability of success that much greater.

One thing is certain, there are plenty of opportunities to sell premium at these levels.

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If you are a believer in a statistical approach towards investing please do not hesitate to try my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.

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