It's Time To Sell Premium...and Buy Protection

One of the most reliable trends I have found over the years is the tendency for volatility to collapse in front of a holiday.  There really is not secret or magic behind this, players are willing to capture premium as the extra days off are ideal for selling, since premium burns from those days when the market is closed. 

Thanksgiving week is ideal, in fact it is the following week that is truly best, as there are 3 1/2 days of decay rather than the usual 2 (weekend, Thanksgiving and half day trading on Friday).  With the VIX so low now, does it make sense to sell premium? 

Yes and no.  In fact, it's probably a good idea to buy some protection if the VIX falls extremely low, into the 11% range.  That's historically low and in the past few years has marked a bottom for the markets.  So, selling premium into the holiday is a good idea here but take some protection along with you.

This seems odd, but sets up a nice strangle or straddle opportunity.  In the option world, a strangle is buying a call and a put simultaneously out of the money, whereas a straddle is buying a call and put at the money,  A straddle example would be purchasing a 218 call and put.

What's the goal here?  We are looking for a volatility move in one direction or the other.  With the VIX so low and option prices cheap it seems like a good move to take both sides just in case.  The Fed meeting is right around the corner, and while a hike is probably baked in, perhaps the market is not exactly ready for the event just yet. 



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