Either, as long as I can forecast it correctly. But yeah, I should have just stuck to the original example for simplicity, so let's go back to that.
Ok, the slight problem there is your risk is rather high in the event of some market shock. Would it just be a case of doing bullish vertical credit spreads at the bottom, and bearish vertical credit spreads at the top then? Thing is, whenever I've looked at those trades, they seem to suck. If you can call the top of the range, why not just buy puts or a bear put (debit) spread? It seems like the superior payoff will more than compensate for any losses on time decay, especially with a debit vertical spread. What about if it's in the middle of the range?
Sell a 6 month straddle, cover it in 3 months, or when your vol target is reached. Pray that vol doesn't run away from you. It's a pure -vega play. Gamma should hardly be an issue for a long while.
Try back testing buying ATM butterfly's. As vol comes in, value will go up. I like to look out around 6 weeks. Very little real gamma. Until last week, then look to roll out, gamma increases near exp.
Well, you can't have it all and a free lunch with a cherry on the top, sire... Essentially, all these strictly limited downside, short vol trades that I describe, whether they be flies, condors or iron millipedes come down to the same general idea: you commit a certain amount of premium, the loss of which plus transaction costs is your downside. In return, you get a certain range that you've pinned that offers you a certain payout. If you're proved right about the distribution at or close to expiry and the mkt is wrong (i.e. the mkt underestimates the "mass" in the range you're pinning), you make money. To be sure, this is all in terms of terminal distribution, so you have to arm yourself with a lot of patience. Also, what you pay on the way in is crucial as it determines your r:r. None of it is rocket science and occasionally these things get cheap enough that they become worthwhile lottery tickets. For example, I have done some of these wide flies in Eurodollar reds recently, trying to pin the area arnd the 97 strike. Again, just my Z$2c.
Direction is the main course. IV is gravy. If you can reasonably predict a trading range, the most bang for the buck comes from the underlying or long options. The UL will give you $ for $ when right (or wrong). Long options have lower delta, time decay and potential IV issues. Since you indicated an ability to forecast IV, then delta and decay are your adversaries. In return you get leverage so if your UL move is decent, you have leverage. Anything involving short legs to hedge (vertcals, butterflies, condors, etc.) is going to have a limiting feature thereby reducing your already sub 1.00 delta gains even further. The tradeoff is that if dead wrong, the loss is less.
if it's on the index you could always sell vix futures short, but beware this is a tricky instrument so you'd better know what you are doing ... which is not the case or you wouldn't be asking these questions ... in other words, you'll have some reading up to do ...
Personally, I think your best bet is to buy some vxx put spreads or even sell VXX calls. For practical purposes, it expresses all of your views (the range view as well as low vol view) and you take advantage of the VXX roll decay.
I agree. Selling VXX calls (or selling VXX call spreads) looks like a great strategy if you don't think the VIX will rise by a large amount. The VXX roll decay is huge.