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Options Theory: A Classic Fade the Fear Trade

February 24, 2022

By | 1 Comment

Today’s VIX spike and oversold market made for a perfect Fade the Fear trade.


Fade the Fear Trade

Setup: Oversold market & Spike in IV

Idea: Bet the fear is overblown. Bet the market doesn’t continue to selloff as aggressively as put options are pricing in.

Sell juicy puts via naked put or bull put spread.

Use SPY, IWM, QQQ, DIA, big company

Trigger: Wait for stock to break above intraday resistance.

Strategy: Sell 1 to 2 month far OTM put or put spread

                Entry technique One: Enter all at once.

                Entry technique Two: Scale-in. Enter partial position

Up gaps are ALWAYS suspect. Markets more often bottom on a big down gap. Signals capitulation.

Stocks open low, rally all day.

VIX gapped up, open high and sold off all day.

Gold/energy stocks gapped up and sold off all day.

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One Reply to “Options Theory: A Classic Fade the Fear Trade”

  1. ROBERTMCKEE says:

    Nice analysis Tyler. I’m dollar-cost averaging into a full position (100 shares) on IWM, meantime selling bear-call spreads for cashflow. So I added many shares this last week. That also reduces the margin required to hold the vertical call spreads.

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