«One lesson from Thursday»
Thursday’s trading session hosted a sizable volatility crush, bringing quick profits to premium sellers. On Wednesday, at the height of all the fear, the VIX topped 29.9. On Thursday, thanks to a market rally bolstered by news of capital injections to First Republic Bank, the VIX rapidly fell to 22.97. Call it a single-session decline of 23%.
As a result of the swift crush (and rising stock prices), put premiums shrank considerably. Take the IWM April $178 put, for instance. On Wednesday, it traded north of $10. At the intraday peak yesterday, the put was trading around $6. That’s a 40% decline in value over 24 hours.
This is why selling puts is so tempting when the VIX is high. All it takes is one day – one day – of the market moving favorably, and you can ring the register.
Chart of the Day: CBOE Volatility Index (VIX)
More of this, please.
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