The VIX, Opportunity and the End of the World as We Know It

As Michael Stipe droned over two decades ago, "It's the end of the world as we know it; and I feel fine." In fact, I feel better than fine. I feel opportunity. The market's been a little shaky lately with turmoil in the Middle East and the resulting oil and gas price increases. But, really? Is the world that much worse now? Was it that much better before? Will this recent turmoil with Libya et. al. come to an end? Wasn't there already a fair share of turmoil to begin with?

The market is always in a state of either over reacting to bad news or being too complacent in the good times. It kind of goes hand-in-hand with the winner-take-all trader mentality. Right now the S&P 500 (i.e. the SPX or its little brother SPY) is faltering and the VIX is at lofty levels. What's it mean? Opportunity.

Probably the most straightforward play out there right now is selling SPY out-of-the-money put spreads. Options are expensive; the market may be somewhat oversold. Put credit spreads are a logical play right now - especially on a down day when the VIX is spiking. Traders who want to maximize their odds of success are best off selling spreads far enough out-of-the-money to give them some wiggle room just in case things get worse in the market.