Over the last month and half, technical signals have proven to be false or extremely short lived. So how do you trade the traditional, conservatively positioned vertical spread when the broad market indices are in a craze?
The first question you have to ask yourself is, “Does it makes sense to be trading these positions at all right now?” The truth is, while the Option Workshop focuses on vertical spreads, the trade makes more sense in some environments than others.
But right now is in fact, a good time for verticals. Since implied volatility is high (both in the at-the-money and out-of-the-money strikes), vertical spreads can generally be positioned at top dollar and/ or further away from price than normal. On the other hand, volatility is high for a reason – price is moving around a lot. A trade positioned well out-of-the-money today, may find itself at-the-money three days from now.Read More