It May Be Insurance Time

Weakness across the broad yesterday with implied volatility rising about 2%, just when you think things will be calm a storm rolls in. The biggest thing that caught my eye yesterday is the fact that we break our level of support. So what does this mean? I think if we continue to see weakness after the FOMC announcement today I will start considering some short Delta insurance. The insurance will likely be in the form of a put spread. Setting insurance is a great thing, but make sure when you do set your insurance you are not destroying your risk graph. One way to do this is by cutting your position in half, it takes less insurance and less risk to protect a smaller position.

At this point I will be patient to see what the FOMC announcement will bring.

Follow My Option Trade Update: Below is the risk profile for this months butterfly.

Iron Butterfly

Heres an idea for an income trade for Jan, its an iron butterfly. I would want to get out in about 17 to 20 days. I will probably be setting something like tomorrow or Monday. I feel like Monday would be better to set this trade, because it would be more consistent with my trading plan. Being consistent is a very important thing to me, so Monday will most likely be the day, but if not I’ll post the trade when I set it.