Randall Liss of 'The Liss Report' Talks About Volatility Index & Options Strategy

Randall Liss is a seasoned veteran of the options industry with over thirty years of experience.

Liss helped found the European Options Exchange in Amsterdam in 1978 at the request of his employer, the CBOE. Liss decided to devote over twenty years of his life in Amsterdam where he was a market-maker on the floor of the exchange he helped found.

After the trading floor shut down, Liss returned to his native Chicago and has since devoted his time towards educating and mentoring traders. Liss is a frequent on-camera options analyst on Bloomberg TV and Benzinga's #PreMarket Prep had the extreme pleasure of chatting with Liss on April 10.

Liss has found his personal transition from a market maker in an open cry exchange to options education as a satisfying transition.

“For me, screen trading isn't as much fun as open-outcry,” said Liss who has developed a proprietary curriculum, The Theory and Working Method of Trading Options.

Liss explained that he offers a personalized options education course which includes theories and working methods which helps disprove the myth that options trading is complicated.

Diving in to the first lesson of options education, Liss explained how important it is for all traders to fully understand the Volatility Index, or VIX.

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“The VIX is a very important indicator to always keep an eye on, even if you don't trade it,” Liss explained. “The VIX is the CBOE implied volatility index, its where the market and its wisdom of supply and demand thinks implied volatility, in the market as a whole, will be in 30 days.”

When Liss was speaking, the index had a 52-week low of 11.60 on the low and 21.91 on the high, and was trading at the time of the interview in the 14 range, which Liss believes is still low.

Many investors prefer to call the volatility index as the “fear index” and for good reason. Typically speaking, the index rises at times when the there is weakness in the market, and vice-versa.

Liss has a unique and different way of describing the index.

“I also call it the complacency index,” Liss said. “If people are under insured, implied volatility is low. And I believe that is what we are seeing now.”

Volatility could pop at any time, Liss argued. Russia could cross in to the Ukraine border or the “black swan theory” which states that an event that comes as a complete surprise has a major effect.

The volatility index is low, Liss reiterated and pointed out that last September the index was trading north of 20 and at the height of the financial panic in 2008/2009 the Volatility Index was north of 80.

As an options guru, Liss naturally trades the Volatility Index through options and shared an interesting trade idea with Benzinga. The June 16 and 20 vertical call spread could be had for $0.80. An investor is risking $0.80 to make $3.20.

Bottom line, “I'd rather be a buyer than a seller,” Liss said to conclude the discussion on the Volatility Index trade.