Volatility levels are still too high to risk a weekly trade entry.
If any of you share the same sentiment that I do, you are anxious to re-enter the weekly SPX Iron Condor into your trade plan. However, the side of me sensitive to risk tolerance is making a very convincing argument that it is still way too dangerous to enter a short term trade.
We continue to see some major market moves across the board, and in the volatility index VIX. Last week was a tumultuous week, where we saw the VIX reach the highest level in almost seven years, or 45% in just 2 days.
While the volatility index has settled slightly from the highs last week, it is still way above the recent range and moving averages
VIX 6 month chart:
SPX 6 month chart
Yesterday we saw a major selloff once again, sparked by week economic reports from China. As of this writing, SPX is +12 points but the day is still young. I still don't trust the market from one day to the next, given the recent moves. That feeling is magnified by the fact that we will be entering into a three day weekend, with the US markets closed for the Labor Day holiday next Monday.
My fear is that I personally don't think these major moves, hence the volatility, will settle down any time soon. What we are seeing is the continued indecision by both buyers and sellers, with no clear picture in sight. Option premium sellers such as ourselves love the juicy premiums this volatility level brings. On the other side of that coin, however, lurks the reality that higher volatility brings the risk of continued major market moves that could knock us out of a position, especially one of a shorter-term nature such as the SPX weekly Iron Condor.
It's really anyone's guess as to where SPX, and the VIX, will be on Friday. The ECB rate decision and subsequent press conference by Mario Draghi is Thursday morning, and the monthly Employment situation report is due out before the open on Friday. Both of these news events, coupled by uncertainty of any hiccup from overseas, could very likely bring additional volatility to the market. But I do know one thing is certain; unless the VIX drops well below 25, I do not feel comfortable recommending a new trade entry for the weekly Iron Condor. Those more adventurous than I may choose to do so on their own, but I would rather not risk my hard earned cash with the "hopium" that the market will be quiet when investors return from the holiday on Tuesday. The charts tell the story; remember to trade what you see, and not what you want. This is a very dangerous time for traders to be entering the market, even more so for a short term, non -directional position such as the Iron Condor.
If there is a change of sentiment on a new trade entry, an update will be posted.
As always, stay keen on your risk management and trade carefully,