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Now that BREXIT has come and gone, and some would call it a surprising result, let's focus on how this will affect Option Traders heading into the coming weeks, which will include the start of Earnings Season.

First and foremost, RELAX!!!  The Dow is only down ~100 points from where it was on Thursday of last week.  That is right... 100 POINTS!  All this yelling and screaming on TV would make you think it was Armageddon.  But that is simply not the case.  There was a significant amount of buying heading into BREXIT, and since the result they were looking for did not hold, we sold back off.  That is it! 

Now that we are all breathing again, there was indeed one huge effect on options:  The VIX! The VIX has almost doubled since the low on June 6.  It is closed Friday, June 24 at a ripe price of 24.74.  This is scorching in relative terms, which means most options will be pricey going into Monday.  We will see what the Market has to hold for us next week, but if it continues to drop, we will see these levels stay up here.  I predict they will come down a bit personally, but that is just my 2 cents.

So, what do we do now?  Keep in mind, high volatility levels mean high premiums.  Most people say "Sell high premium and buy low ones".  I am not in that camp.  As a spread trader, we are buying AND selling, so the premiums will be high on both.  The only real effect inflated premiums will have on our trading is how far out you might have to go to get a good risk to reward on an OTM Debit Spread or RIC.  Don't get greedy.  This is not the time to try and hit a homerun.  Be conservative on your strikes, look to hit some singles and get some runs in.  Until we see what Monday has to hold, I also would not be jumping on the Iron Condor bandwagon just yet either.  Yes, they will work great if things quiet down, but we have yet to see if that will be the case. Monday will be a big telling sign for just that.

So, in short, don't panic, keep doing what you know works, hedge and be patient.  If you can manage those few things, you will be very happy come week's end.

Happy Trading,

OptionDave

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