One of the best strategies to take advantage of an upcoming holiday is to sell premium.  It works well in a low or trending lower volatility environment, and it works especially well when volatility (VIX) is high.  The goal here is to take maximize time decay, in this case next Monday, the markets will be closed for the President’s Day holiday. 

Hence, including today, there are only five more trading days for the February monthly equity option contracts (the ones I normally play).  So, we have a three day weekend.  As a seller of premium, time is on our side, and if there is no trading in a day, that is a huge benefit to the option writer. 

To wit, we have often seen volatility “chased lower” into a holiday – traders are onto the trick and sell premium in advance of the holiday, all things being normal.  That last point is the key, if there is some news event (and we have plenty of tinder set for that to blow up with Greece, Eurozone, Russia, and terrorist attacks) that could dislodge the trend. Then, the strategy might  not work exactly as planned.

However, when we sell premium, the clock is our friend, and as such we always have the luxury of waiting it out before having to make a decision.  Conversely, a buyer who takes the other side of the trade is in a race against time to have the stock move quicker before expiration.

While there are many time strikes to choose from that could work,  next week (Feb 20th) would be my preferred strike, as it has far less decay.  With the VIX still rather elevated but coming down, this could be an ideal play into next week.  I will look at some of the higher premium names that have been trending well to sell put spreads – Apple, Netflix, Amazon, Google, Boeing, Disney and Chipotle. 

Now you may ask if the holiday is already priced into these option prices.  The answer is yes, so where is the advantage?  It is in the trend of the market, its future is unknown.  If you play the odds of a continuing trend and it works out, then you can benefit from this call.

*** One quick note:  naked selling is NOT a great strategy, and while it can bring in more premium, there are insurmountable risks here, exposure to heavy losses and brokers require substantial margin be posted.  Spreading out requires far less margin and safety, just in case things go horribly wrong.   

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