These make for some very interesting markets at all time highs and low volatility. However, the general feel of the market has been very much different than last year which is good. First of all small caps (TF/RUT/IWM) and Nasdaq (NQ/QQQ/NDX) have been very weak lately. The NQ just rallied with the ES, but it has been a great scalping vehicle, and it also has been a very good vehicle for strangles while the ES/SPX has not been nearly as good. The cyclical action has been okay in the ES but we still are having the grind higher tendency which is something I do not care for. However, we have seen quite a bit of volatility in major names (TSLA, NFLX, AAPL, GOOG, TWTR, etc). Those names have been pretty good, and macro markets have been good. Even if I have not had a focus on some of these bonds, currencies, and commodities have all had decent trading volatility.
As for the US indices, I think we are going to need a catalyst to get some volatility going. I have been long a few Vix calls, but I am going to dump those positions if we do not catch something within the next week. However, I will be selling calendar spreads in the VIX. Vix options are based of the futures so when volatility goes up front month vol will go up much more than back month vol, and these calendars can trade at huge credits when we get vol expansion. I will sell these as cheap protection, but I am remaining long theta and long some vega. My net portfolio Prob of Profit has been lowered by the long vix but the analzye tab/models do not take some of these things into account. The premium sale for a while is going to be IWM. I have a relatively large position in IWM, but it is skewed to the downside for the purpose of protection. This continues to be of interest as volatility percentile in IWM is consistently above the vol in SPY/SPX lately, so the options are relatively expensive, so I am selling them. However, do keep in mind that ATM premiums as a % of the SPX price are at 5 year lows.
I also see some interesting trading in bonds and currencies. Trading the fear in the euro for example is acceptable and even if the ECB meetings on Thursday take a bad I am still trading euro from the long side via calls in FXE or the 6E futures options. I am buying options in this case because considering what kind of move could happen the longer term options (108 days to expiry) seem cheap. Bonds will also have some interesting movement because I see slowly these assets creeping up as market participants lose interest in equities and move into less risky safer assets such as bonds. I will be buying the dip and playing options is going to depend on vol and binary events that can occur in these markets.
Lastly, commodities are also of interest. Agriculture could also be in play in the coming months and into the harvest season and summer. I am thinking about a direction, but go with the weather trend. I think Corn could be a buy as we are heading into the summer months, and if we have a hot summer then it will get interesting. I prefer directional trades in this case because all the options seem to be fairly priced. I am also going to be selling premium in oil when I can. It is more cyclical than people give it credit for and right now it is out of the picture of news.
