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Imagine if there was an index that directly impacted the price of every stock and not the other way around. It measured, in a simple 0-10 scale of whether stocks as a whole were expensive or not.
On days when it was high (say, above 5), you would want to sell stocks. When it was lower, you would want to buy stocks.
Making money in stocks would be easy. You would know, based on absolute raw numbers if stocks were priced expensively or cheaply.
Well, right now, there's something similar that's happening in the world of options.
There's an index that directly impacts the price of ALL options. You might have heard it called "The Fear Index," which is something of a misnomer.
Otherwise known as the Volatility Index or “VIX”, it’s a simple index that measures the market's expected movement in the S&P 500 over the next 30 days.
Yes, the VIX spikes when stocks fall – but it also spikes when stocks rise. In some cases, it might rise if the market is flat. The market can expect any number of scenarios, but it is important to remember that the VIX acts as a multiplier for the price of options.
In effect, the VIX is a scale that tells when options are priced high or low. As income investors, that's all we care about.
Because today, the price the market is willing to pay for options is higher than it has been in a year…
Why? It probably has to do with the government shutdown…but I honestly don’t care about the reason.
Let me explain. Below is a chart of the volatility index, also known as the VIX. There’s no doubt, that if you want to get the real pulse of the market, you can look at the VIX.
We’ve all seen it running across the ticker screen on CNBC or Bloomberg, yet many of us have no idea what it is, or more importantly, how to use it to our advantage.
Simply stated, the VIX monitors investor fear. And it rises when investors have concerns about the market.
As you can see below, the VIX is currently trading near 19. That’s nearly a 40% jump in just three weeks.
When the VIX is low, options are considered cheap. When the VIX is high, options are considered expensive. As you can see from the chart we are nearing new highs and these periods of high volatility typically don't last long.
So, now is the ideal time to protect your investments by selling a few options, namely credit spreads.
This is exactly what I do in my Options Advantage service…I sell options to speculators. And when options prices are hitting new highs and can make substantially more while increasing my odds on each and every investment.
So now it’s time to collect more money (with less risk) from very simple investments like the S&P 500, the Russell 2000 and AAPL.
Simply put, when investors are “afraid” they’re willing to pay a lot more for options. And we can use this increased fear to take less risk and collect more income – that’s the holy grail of investing.
To take advantage of this spike in the VIX, I’m hosting a free, live webinar event.
Join me, next Wednesday at 12 p.m. and I’ll show you exactly how to profit from market fear.