In early September, it looked as if an uptick in volatility might provide attractive trading conditions for the last quarter of 2016.
At that time, it was believed that strong economic numbers could put the US Federal Reserve in a prime position to raise benchmark interest rates - an adjustment that could consequently create a shift from the summer doldrums.
Fast forward a couple weeks, and the Fed's September announcement is now a part of history.
Electing to keep interest rates at current levels for "the time being," fear of risk was seemingly tossed aside, as observed through a sharp rise in stock prices and a quick drop in the VIX (hitting ~12 only one day after the rate announcement).
With many market pundits now speculating that the Federal Reserve won't raise rates at the November meeting (due to the upcoming Presidential election), general consensus seems to suggest the next "live" meeting will occur in December of this year.
Going by the above, we could be in for a continuation of low volatility conditions through December. But that's only one interpretation of recent/future events.
It's entirely possible that the Federal Reserve could be compelled to act in November if economic conditions strengthen further in the near term.
It's also possible that the relatively widespread expectation for a rate hike in December could create additional market volatility between now and then - or that a completely unrelated macroeconomic/geopolitical event could unhinge markets (i.e. a tightening of the presidential race).
Every trader has his or her own interpretation of what's occurred in the past and what might transpire in the future. The most important thing in trading is to ensure that your portfolio is positioned such that your vision of the future is expressed using effective risk management.
A recent post on the tastytrade blog highlights the importance of proper scaling of positions. While another discusses the performance of short premium strategies across a range of volatility regimes (low, medium, high).
We recommend you review these topics in greater detail as you contemplate your approach for the last quarter of 2016.
If you have any questions about portfolio or positional risk we also hope you'll leave a comment below or reach out at email@example.com.
Best of luck for the 4th quarter!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.