Condor Options

Bill Luby at the always-engaging VIX and more has an interesting post up, in which he inverts the [tag]VIX[/tag] in order to ask whether now is a good buying opportunity for equities.

His point is persuasive, but as perpetual [tag]theta[/tag] fiends, we’re less interested in getting long or short [tag]equities[/tag], and more interested in whether high [tag]volatility[/tag] environments like this are good for selling, or good for sitting.

You may think that’s an obvious question: of course we want to sell volatility when it’s this high, right? (Via [tag]iron condor[/tag]s, double diagonals, etc.) “Load up the boat!” you shout, taking advantage of your new extended margin to move markets with your aggressive 60-lot bids. Not so fast: what if volatility gets higher?

But with a 25/26 handle, the VIX is clearly in early 2003 territory. We could be seeing the beginnings of a bear market, or just a much-needed correction. In either case, though, a short-term snap back down in the VIX is likely, which is why we, as always, are shorting the heck out of volatility (via ETF options, of course; we’re not crazy enough to actually trade VIX options!).