Good News for Option Sellers
For folks who are taking today’s essay to heart and are planning to sell options, we’ve got good news in the chart below.
Over the past few years, we’ve highlighted how you can generate huge amounts of safe, conservative income by selling stock options… and we know many folks have taken this valuable advice. (You can read some of our best pieces here, here, and here.)
When it comes to selling options, the more fear there is in the market, the better. Fear fattens the price of options… which allows contrarian traders to generate incredible gains. You can track the “fatness” of these option payments by monitoring the Volatility Index, aka “the VIX.”
#-ad_banner-#Known as the market’s “fear gauge,” the VIX measures the price folks are willing to pay up for protective stock options. When the VIX is below 18, we can say the market is calm… and option prices are low. When the VIX is over 30, we can say the market is full of fear… and option prices are high.
As you can see from today’s chart, the VIX has spent much of the year below 18. Then, this summer, Europe’s sovereign debt crisis advanced to the next inning. The VIX skyrocketed to 45… and remains at elevated levels. For option sellers, this means the sun is out… and it’s still time to make hay.