Volatility has entered a region it has not sustained since May and June of this year, primarily due to selfish politicians in DC, who would rather ensure their own re-election than compromise to benefit the U.S. economy and most Americans.
This all too familiar incompetence creates opportunity, in that volatility is mean reverting, as those who pay for downside protection in hedging portfolios can’t do this forever. Implied volatility in the options market will fall, the only question is when.
While a huge payoff may occur in the weekly options (10x is possible) should you be correct in predicting a deal this weekend, it is far easier to take advantage of the elevated volatility to put on positions farther out. If we fail to get a deal, a market sell-off may commence, but will it last several months on high volatility? That is possible but unlikely. Certainly there are tons of doomers out there, but aren’t there always? Haven’t we heard so many S&P 666 retest prognostications and death cross warnings to realize that these folks are less than reliable?
So looking out to Feb, we see some additional opportunity in Feb VXX $28 puts for .90-95 or so. And spikes in volatility will be sold if the VIX futures rise due to the ineptitude.
New Trade:
Feb VXX $28 puts at .90 – 11.55 am.
Update:
Added Feb VXX $26 puts at .42. These traded at $2 on December 18th. 2:20 pm.
