How Options Traders Use Skew to Time the Fed Decision
Summary
This episode analyzes options strategies for the upcoming Fed decision, noting a flat volatility skew and low VIX despite market uncertainty. Experts recommend using put and call spreads, such as risk reversals, to manage defined risk rather than trading naked options. Listeners are advised to monitor the VIX of VIX and skew metrics to gauge true market fear and time entries within days of the announcement to minimize theta decay.
Topics discussed
Fed decision odds and low VIX anomaly
Understanding SKU and market posture
Trading strategies: Spreads vs naked options
Risk reversals and financing trades
VIX of VIX (VVIX) as a fear gauge
Commodity prices and inflation risks
Finding edges in complacent markets
Show support and ad-free policy
Timing trades to minimize theta decay
Concrete example: S&P put spread setup
Financing with call spreads and trade-offs
VIX term structure and complacency
Key takeaways and risk management
Listen ad-free on Castria