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.
Volatility and the stock market normally move in opposite directions. But occasionally, the relationship between $VIX, $VIX futures, and the S&P 500 becomes distorted.
When that happens, a unique hedged options strategy can emerge.
The $VIX / $SPY strategy combines volatility options with SPY options to potentially benefit from both volatility mispricing and large market moves.
With volatility starting to stir again, this setup may be forming once more.
Both in May 2025 and October 2025, we published articles with the above title. I won’t include them here, because they were too long, but one can find them in the archives of The Option Strategist Newsletter on the website. I will, however, summarize them. It turns out that when realized volatility and implied volatility differ by a substantial amount, it can be a market-predicting event. Here’s the quick summary, using the 20-day historical volatility of $SPX (HV20) as realized volatility and $VIX as implied volatility:
Predicting stock prices consistently is difficult.
Predicting volatility behavior, however, is often easier.
That is why many professional option traders focus more on volatility than on price direction.
Every option price reflects a forecast about future volatility. Market makers and traders must estimate how much the underlying asset will move over time, and those estimates are reflected in the option’s implied volatility.
In The Option Strategist Newsletter, we recently had a very nice profit on a long run by the Silver ETF (SLV). We rolled that position seven times, each time taking a credit from selling a relatively deeply in-the-money call option and replacing it with an at-the-money call.
