We are Down. So lets talk trading strategies!

Wow! My screen was red the past few days. Is that legal? It was probably a computer glitch. Anyways, my peeps sent me studies and usually when the markets are down 3 or 4 days in a row most of the time the market went up later. Otherwise, I have been short stock indexes (very small), short euro, long oil, long gold, flat stock indexes (long SPY short QQQ), short some brazil, short emerging markets, long gold (entering), have a few non directional and directional spreads in individual stocks, and once again I shorted some put spreads in GOOG. I exited all my AAPL positions for pretty good profits FYI, and the iron condor trade in my trade ideas post has done pretty well. 

However, I wanted to talk strategy and mechanics. As my viewers and readers have read, I stress mechanics and statistical edge. The statistical edge I have usually is theta however there are some anomalies in the markets that can be found through a large amount of statistical research (one of my best friends). So, as most options traders know vol is crazy low. The volatility this year has been very torturous. My theta right now is about 1/3 what I need it to be because of the volatility. However, a really good way to alleviate the problem is using calendar spreads. Calendar spreads are shorting a front month call or put and buying a back month option at the same strike price. This is a great time for calendar spreads, especially if you are a contrarian trader. My friends over at tastytrade.com did a study with directional calendar spreads (moving your strike lower than the stock price to give yourself short delta) and the calender spreads by far outperformed the short call spread and long put spread. The reason for this is because these type of spreads (calendars and Diagonals) benefit from pops and volatility, and volatility tends to pop up very fast from lows in short periods of time. So these spreads are usually very boring, but you have a great statistical edge with them because of the way volatility acts. Also along with the exposure it has to pops in volatility these type of spreads often have long theta in them which means you will also profit just from the time decay in the spread. 

So, some of you are probably wondering how the last paragraph has anything to do with statistics, strategy, and mechanics. I simply wanted to illustrate another edge that you can use to your advantage in today's low volatility environment . Edge should always be a part of how you manage trades and strategy. If there is no more edge don't do the trade. If the probabilities don't make sense for your side of the market anymore close the position. At the current time, it makes most statistical sense to be doing calendar spreads and the most mechanical sense for your portfolio management.