imo, one of the best ways to capitalize on volatility is to think of it in cliche terminology: "expect it when you least expect it": iow, be patient, wait, then wait some more, until you have forgot about what you were waiting for, then and only then, go on a shopping spree buying dotm index puts. âHave patience with all things, but chiefly have patience with yourself.â
Yep. Also, I've had good experience trading VIX 1x2s (or any other ratio spreads). Obviously you have to evaluate the skew and the current level of vol - both buying and selling ratio spreads works, but in different conditions.
I don't trade VIX options but if I was going to, I might do a trade like this. SELL -10 VIX 100 AUG 11 15 PUT @.25 LMT I would sell 10 VIX August 2011 $15 put options for a $250 premium. The margin requirement would be $2354. This gives a 10% ROI on the trade if the VIX options expire OTM. There are 44 days until expiration so I would want the VIX to stay above $15 during that time. If the VIX is above $15 in 44 days, the options expire worthless, and I keep the premium. This trade would be for a $100,000 account which allocates a maximum 2% to any one trade. The $2354 margin requirement roughly meets this criteria. If you have $1 million, you can sell 100 puts and make 10x the money.
Hello Beta I really like your idea. Your strategy seems very similar to mine, collecting premiums and taking advantage of time decay. Very nice.
FYI: in early aug 2006 the vix dropped from 15.50 to 11.50 in a matter of a couple of weeks. this is one of the most imprudent trades i have ever come across!! what a total waste of time even if it expires worthless.
Perhaps buying calls would be better. http://www.elitetrader.com/vb/showthread.php?s=&threadid=223010
I would say that's not the wisest trade out there - you are selling puts on an asset with a positively-sloped term structure and thus you will have a pretty strong negative drift. While I agree, vol of vol is high and selling it looks attractive, I would be very reluctant to sell puts with a strike that's more or less equal to the ATM spot level.