The market is brutal these days for sure. It is simply becoming more and more oversold each passing day. This of course has caused more and more volatility and panic in the market. Although my expectation of a quick rebound has not yet come, the current high volatility has created a great time for trading for income. Generally speaking, the time premium for options will shoot up to moon during panic but such a high time premium will decay quickly when the market calms down, which will always happen sooner or later. One way to make quick income is to sell naked puts and the best time to do this is when VIX is 25 or higher. When you sell naked puts during high volatility, the statistics is your great friend as you generally will have a 90% chance to win. The trick is of course to only trade for income for stocks you want to own, not other risky stocks that may drop to zero. So for a day like today that VIX went up to almost 30, I'm really happy to take the opportunity to sell naked puts for some stocks I love to own, e.g. MSFT, BMY or GILD. Believe or not, their put premium is so high that I have a good chance to get free money at about 5% in 2 weeks. So what's the worst case scenario? Well, I may need to buy them in 2 weeks if they continue to go down but at about 5% discount from today's already depressing prices. The chance of having to buy them within 2 weeks is low at 10% because I have a 90% chance to just walk away with some free money. I feel great with this kind of opportunity for sure!
Moving forward, we will likely see more such opportunities in 2016. Be prepared and have the gut to act when such a day comes.
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