According to the people over at Condor Options, the optimal scenario for most income trades is to have high volatility when entering the trade and low volatility when closing it. On the other hand, having low volatility when entering versus high volatility when closing can be painful because of the short vega exposure that most income trades carry. Entering most income trades in low volatility environments is ok as long as a volatility remains the same or declines further throughout the life of the trade.
With the recent price declines in the overall market, implied volatility has been beginning to pop. The sharp drop in several commodities today and recent selling pressure of the equity markets causes concern. The big drop in commodities is examined by Steven Place over at Investing With Options. Also, Mark Sebastian over at OptionPit examines the current pop in volatility and asks if VIX has topped. They are both great posts.
During times of concern, volatility tends to rise. I am looking forward to playing this rise in volatility.
Below is a 6-month chart of SPY. IV30 (red line) is increasing along with the IV30 & HV30 spread (yellow area).
Chart provided by Livevol.
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