The old saying is complacency kills, to which I would say…unless one likes to sell premium. In that case complacency rules.
All kidding aside, the market appears to be in an odd spot: On one hand we have the VIX cash market, the market derived from index options. its trading at about 15.30 or so as I write this and is currently trading slighly above the June future (which still has a 9 days until it settles.
On the other hand we have the futures curve which is pricing a 15.30 VIX like that is about all the market can manage. June is trading at a BIG discount to July, but July is not trading at a huge premium to the Cash market. With the curve here, I would expect to be looking at a VIX of about 14. In fact, about the only thing that is showing ANY fear is the cash index.
In an odd way one might say that those who hedge directly in options are scared to some some degree, but those who hedge using volatilty or varience are completely unfazed by Greece and the Fed. Is the VIX the boy who cried Greece, or is there really a Grecian default coming. The smart money seems to think the former. Thus in a way the market is scared and comlacent….odd.
The Lesson
When one is confused by the market, it typically makes sense to trade smaller size and a more diversified portfolio of trades.
The Trade
I am not sure I would be a huge seller of volatility premium here, even though I think its probably a sale, oil is probably a better place to sell premium than equities.
Mark Sebastian is the founder of Option Pit, which provides top to bottom option trader education concentrating on traders who want to become full time professional traders and traders that are already trading large amounts of capital.? We are focused on helping option traders understand key trading skills and techniques, while not emptying the traders account to pay for education.? Students that enroll in any of our services will emerge from our program with more confidence in their ability to trade options. ?