The right time to be selling credit spreads

The price of options is affected by many things one of them is volatility. Right now volatility is high and it is the right time to be selling credit spreads!

The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. VIX peaked around 50 today, to give you an idea of how high that is for the past 6 months prior to September it has been floating around 20 to 25 with a low of around 15! It appears that this volatility may be sustained for a long period of time. What this means is that prices are more likely to fluctuate a greater degree.

For credit spread traders this is a great time to be selling options. A high volatility means higher premiums (a previous post on this High Volatility means Huge Credit Spreads) for the conservative trader this means we are able to place our trades further out of the money and still have a decent profit with a more probability of success, not from the probability calculator, but rather in many cases you will be able to place the trade beyond a couple levels of support or in the current situation (Bear Calls) beyond a couple levels of resistance.

So the time could not be better…it appears as though we will be in a long term bear. How do I know? Some experts are stating we are making a bottom others are saying we still have not seen the worse yet. What this means to me is confusion and uncertainty which usually means a continuation of the direction we are heading, in this case down! We also have high volatility which means higher premiums. So sell those Bear Call credit spreads!

credit spread, market expectations, volatility index vix