The volatility indices have worked off their explosive moves from last week, but still remain at levels equivalent to their former 2yr highs. In environments like this, it typically means that premium is an expensive bet. Mix in the fact that earnings season is upon us and this makes premium for most individual stocks elevated as well.
I often say that in situations like this “less is more.” When option premiums are blown out like this, it makes buying options a lower probability bet. Once the volatility normalizes we start to creep back in, but in these situations I take less trades for that 1-2 week period of volatility normalization because it weighs heavily on premium you trade.
We’ve been talking about utilizing stocks that are slower moving instruments than we normally like. These low beta instruments will have cheaper premiums than what we normally trade, but will likely be expensive relative to themselves.
If the market continues to consolidate here, this may only last another week or so. In the meantime, if you are trading options, do so with shorter timeframes and purchase shorter dated options. Ideally, you could sell spreads here as a high probability alternative, or utilize short puts to enter stock positions or sell calls to protect the stocks you own.
In regards to the day, the Russell has the relative strength card again, but is at the 1090 wall. A break of this would be pretty constructive in the short term.