The trade most miss when vol explodes

When implied vol hits 60%, most retail traders freeze. That level of volatility mean the stock is expect to move around 4% per day.  More chop than most can handle.

"Too expensive to buy, too dangerous to sell", is what they say.

I say it depends on how you sell. 

Here's how I think about it:

Say a stock is trading at $60 with 60% IV. You want exposure. But vol ans spot have exploded and you don't want to chase the shares up here.

So sell the $50 put.

Vol is pumped, so you're getting paid well for it. And what are you actually committing to? Buying the stock at $50 if it gets there. That's a level you already wanted to own it at. As long as you've got the cash to take delivery then you won't get into much trouble. This is known as cash covered put selling.

Now take that premium and buy a call spread.

If there's elevated call skew in the name (common when vol explodes), the spread gets wider for the same price. You managed to get good upside leverage to your premium spend even with high vol.

Net cost? Close to zero.

You've got upside through the call spread. You've agreed to buy the stock at a level you already liked through the short put. And you funded the whole thing by selling the expensive optionality that retail is too scared to touch.

That's the game.

Next time vol spikes and everyone's running for the exits, ask yourself one question: what can I sell to finance what I want to own?

Volatility is a price-check on your wishlist. Treat it that way.

If you're nodding along but you couldn't actually structure this trade tomorrow morning (which strikes, what expiry, how to size it, when to unwind), that's exactly what The Ultimate Options Course is built for.

Learn to read vol spikes before the next one hits.

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Volatility first