The market has had this weird feeling the last few day. Especially since most Vols are high and most trading vehicles are building a 6 month low base or forming a base in general. I love sell premium in situations like this, but I feel one of two things will happen. The first big concern I have is that this rally has no legs. The switch from negative to positive outlook basically changed over night. I don’t think people are or have switched like a lot of people may think. I think we might have some more downside in front of us. Making this current market nice to sell, but we all need to stay nimble. From my experience we need to see more capitulation before a bottom is in place. I haven’t seen that capitulation, especially in the volatility market. The main idea that I am trying to get across is that I feel we need to be nimble while short volatility.
Even though I have a slightly bearish outlook, I am still trying to take advantage of higher vols and lower price. I set a new trade this morning that I wanted to share.
EWZ is the Brazil ETF, very liquid and great to trade. The chart is a prime example of what I was talking about before. (High Vol, 6 month lows, basing pattern) I like how the chart looks, to me I think selling more puts then calls and or buying stock and selling calls would both be great strategies. Since I have a “slightly” bearish outlook on the market I feel selling the 57 call and selling the 47 put for July is where I feel most comfortable. Total credit that I received was $1.33.