Traditionally December and January are tough period for premium sellers. There are holidays, travel plans and time to enjoy new year bashes. Before we delve into trading plans, let’s review the big picture where we are now:
Stock markets : DOW all time high, S&P high and higher, Nasdaq though not close to highs of tech bubble but we are in a strong trendy market.
Volatility : Low !! Just about to reach single digits. The volatility indices have declined last week even farther. $VIX traded down to 10.04, an extremely low level, while $VXO dipped below 10. These lowly levels on $VIX indicates an overbought condition. But unless $VIX starts to trend higher – rising above 13 or 14, say – then the market should be able to move higher.Premiums: Premiums are low, specially on the call sides. When premiums are low, the risk/reward ratio generally don’t favor “income generation” type players.
So what to do? I don’t want to speculate the direction of the market. Sept/Oct have been historically worst month, but what happened to those months this year !!! Now Dec/Jan are statistically bullish month, so?? Following my believe in trading philosophy (That I learned from my close friend and an excellent option trader Krishna S.): Capital Preservation is higher priority objective than Capital Appreciation, whatever trades are planned for this month, one needs to be extra cautious to ensure there is proper risk management plan in place for each trade.