A Quiet Day Is the Best Day for a Volatility Seller
The market is rising and fear is receding. On Friday the Nasdaq-100 gained 0.5%, while the VXN volatility index fell 1.4 points. On our scale, the volatility regime shifted from Normal to Calm.
The account turned positive in the first hour of trading and held the gain to the close. Option repricing, not price, did the main work: implied volatility on the position declined, and for short volatility that is the main source of income.
The rest was on our side too. The market's advance meaningfully helped the position, and time decay added a modest amount on top. Nearly every force of the day pulled in one direction, which is rare.
What we are watching next. Monday is Columbus Day: the U.S. bond market is closed, with no major events on the calendar. Volatility determined the day's result, so it remains our primary focus. If it continues to decline, the regime remains favorable. The risk is a sharp return of fear, which would make options expensive again.
Editor’s Note reflects the author’s market perspective at the time of publication and should be read as commentary, not investment advice.
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