Subscribers,

Many of you have heard me talk about how we don’t enter new iron condor trades during low volatility environments.  There’s several reasons for this but essentially, being a net seller of options is better than being a net buyer, and if you are going to sell options it’s more advantageous to sell for higher premiums  (higher volatility)  Here’s a couple entries from my 6 part Iron Condors 101 series you can check out when you have a few minutes:

 

Why selling options beats buying: http://volatilitytradingstrategies.com/index.php/2017/02/04/iron-condors-101-selling-options-beats-buying-options/

 

Iron Condors perform better in high volatility:
http://volatilitytradingstrategies.com/index.php/2017/02/05/iron-condors-101-part-3-prefer-90-iron-condors/

 

But what do option traders do when volatility is as low as it is now?

 

The answer, look for higher volatility elsewhere.  It’s a common misconception that the VIX index is a representation of all market volatility, but actually it’s quite specific.  The VIX measures the options activity on the S&P 500.  So we can certainly look to the VIX if we’re trading S&P 500 options.

But if we’re trading the RUT like we have for the last year, we’d want to look at the RVX instead.  The RVX is essentially the VIX for the Russell 2000.

If we’re trading gold, we’ll check the GVZ.  If we’re trading oil, the OVX.  Apple stock?  VXAPL, and so on…

Many people aren’t even aware that these exist.  So just as a general introduction to the fact that there are VIX style volatility representations for a wide variety of indexes, asset classes, and individual stocks, here’s a chart of some useful ones:

 

 

So it’s very true that volatility on the S&P 500 is at historical lows and it would not be advisable to sell iron condors on the SPX right now.  And for our purposes, the RVX is also historically low so you won’t see any new RUT iron condors until that changes.

But that doesn’t necessarily mean that option traders just have to take a vacation.  There’s always volatility somewhere in the market, you just have to know where to find it.

 

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