Implied Volatility and Options Trading

It is another quiet day for the SPX and I do not expect that I'll be placing an order for either call or put option spreads. Implied volatility levels are too low to allow me a sufficient credit at a price level I am comfortable selling a spread.

There are other trading opportunities, however. Yesterday, I shared one of the tools I use to assess implied volatility. Another tool I use a service provided by ChartBender.

If you've been following this blog, you'll remember that I opened a position on CROX a few days back. That position turned profitable very quickly, but CROX has been retracing after its recent breakout and the position is being effected not only by the price movement of CROX, but also increased implied volatility.

The ChartBender graphic helps us see when a given options position is relatively expensive or growing cheap. Cheap positions are typically candidates for a purchase, while the more expensive positions are ripe for selling. If your outlook on CROX is bullish and the stock holds support, it makes a nice candidate for a bull put credit spread. As you can see, the value of the 50-45 bull put spread has been steadily increasing providing a nice credit.

You can check out the ChartBender service on their web site. If you're interested, you can get a nice discount on any of their product line by simply identifying "TheOptionClub" as your referrer and as the promo code. They'll knock a fair piece off of their pricing for you.

In the meantime, we'll keep an eye on the SPX to see if an opportunity develops. Low volatility levels makes it difficult to sell option premium profitably. If you're a credit spread trader, it is time to exercise some patience and to pick your trades carefully.

Trade well and mind your risk.

Christopher Smith
TheOptionClub.com