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Why did selling SP500 volatility trades blow up?
Created on: 1/17/2021 5:01:31 PM   Last Update: 1/17/2021 5:29:10 PM Posted by: RTT

why-did-selling-sp500-volatility-trades-blow-upMany have made their fortunes selling volatility premium and then losing it, that is because they are running down the lit fuse and not understanding that eventually the strategy blows up.

In the chart below periods marked with A, B, C, D are periods of chasing yield which was so great the selling of option premium became vogue. Yes, this strategy worked for a while and 'this time was different' worked, until it didn't.

Selling volatility work great during period gray A until the cycle ended at red A.
Selling volatility work great during period gray B until the cycle ended at red B.
Selling volatility work great during period gray C until the cycle ended at blue C.
Selling volatility work great during period gray D until the cycle ended at blue D.

The point is if you play the selling volatility game, know thy cycle. Cycles matter!. The dominate cycles below gave you plenty of time to go to side lines when risk became apparent. 

NOW >>What is interesting is gray E, VIX is above 20, and the red cycle is rising with the blue cycle is pending a swing up which suggest we are in a pending crisis moment (deflation shock). 

IDEA: Have cycles studies in you investing plans, mix them with sentiment and market fundamentals.




VIX



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