Using SKEW-adjusted VIX inputs, learn the likelihood of the current market condition being favorable for selling option premium.
Perhaps you’ve found yourself in this situation.
The index appears to be trading within a range and it seems like a decent time to begin a condor or butterfly campaign.
Once implemented, the market goes crazy….in this case to the downside. Clearly, this behavior is lethal to any butterfly or condor approach, no matter how skilled at adjusting the position you are.
But wouldn’t it have been nice to have an indication that the probabilities were against you on that day?
Well, we have some good news. Our Index Condor/Butterfly Timing Report does just that.
In this example, our report indicated a trading edge of negative 5.3%, clearly a red flag for index option sellers. Based upon past behavior of the market when in similar conditions, the probabilities were greater than normal that the day in question would end up being unfavorable for starting butterfly of condor positions.
Here is a report that shows a positive edge which means the probabilities were greater than normal that the day in question would end up being favorable for starting butterfly of condor positions.
Many traders think they can implement butterflies and condors in any market environment. After all, they think, even in down markets the VIX is higher and so are the profits.
Years of research and experience have made it clear to me that no, this is patently false. Some environments definitely should be avoided. Fortunately, you can now know specifically the probabilities each day with research using historical VIX and realized volatility data.
To learn about the specifics that go into our edge figures, watch the 30 minute video above.