The major indices are all enjoying a booming bull move to new all- time highs $SPX, $NDX, and $RUT (while the Dow is closing in on its highs as well). This display of strength has occurred in the face of potential geopolitical worries, which indicates that "the market" isn't too concerned with those. $SPX has strong support at 7000 -- the previous all-time highs -- as well as minor support at 7125 and 7050.
Some traders prefer to see columns of numbers, and others—myself included—prefer to look at graphs or charts. A “profit graph” is a graph of the potential profits and losses from a position. With options, it is possible to describe most of the major strategies by the shape of their profit graphs. A simple example should be sufficient to demonstrate the concept.
The major indices are on a roll, with S&P 500 ($SPX; SPY), NASDAQ-100 ($NDX; QQQ) and now Russell 2000 ($RUT; IWM) all making new all-time highs simultaneously. Back in January and February, $SPX made a new all-time high by a few points on several occasions, but it was never able to put together a strong breakout rally as follow-through. Eventually, that was onerous, and the market fell. But now it appears to be adding to the breakout gains, which is a very positive sign.
One doesn’t often consider butterfly spreads or condors, say, as short-term speculative strategies. However, they can be, if you set them up that way. The main problem with butterflies, in particular, is that they don’t reach their profit potential until very near expiration (unless the strikes are extremely far apart).
Typically a butterfly spread is constructed in this manner:
If you’ve been following the market closely, you’ve likely noticed that conditions have changed.
Volatility is rising. Trends are becoming less reliable. And sentiment indicators are beginning to shift in a more defensive direction.
This is the type of environment where many traders struggle—not because opportunities disappear, but because the margin for error becomes much smaller.
In markets like this, discipline and structure matter more than ever.
Over the years, we have discussed a lot of volatility-based trades. Since volatility is high now, a number of them are apropos, so for newer and older subscribers alike, this article is a condensed summary of what the primary implied volatility trading strategies are, and how and when to use them.
