The Vix Index or the “Fear” Index dropped over 10% today. Of course, this is not surprising given that the much-watched Greek elections over the weekend were what the markets wanted. The markets did indeed dodge a bullet ! However, all is not well with Spain’s 10-year bonds spiking to over 7.1% today, and that has the European and U.S. markets worried. We are entering a low-VIX environment and this can produce a few great strategies over the next 6 to 12 weeks. In this video, we discuss some of these Options strategies.
A low-VIX environment is a great time to be a buyer of Options and to have an Option buyer’s profile. Due to lingering uncertainties in Europe, a low-VIX environment cannot be sustained for long, and this can produce nice profits when the volatility starts to go up again. Since you’re an Option buyer, you have to watch for two things – Time decay or a decrease in Volatility. By timing your entry in a low-VIX environment, you’re almost removing one of those risks entirely, although its possible that Volatility may go down some more this week, especially if the FOMC meeting produces any announcements that the markets can cheer on. We’ll be watching to see if a VIX level of 15 is hit this week. If it hits 15, it will be a great time to buy some Options positions that can produce dramatic returns when Volatility goes up again.