Welcome back, Swimmers. I apologize that my posts have been few and far between as of late, but with a newborn at home, time is a premium. Is anybody exhausted from trading and following these markets recently, or have you been licking your chops? From a volatility trader's standpoint, we might be looking at one the best times to be an option trader in recent years. There is so much indecision out there that option premium levels are skyrocketing. The VIX is over 40 and the earnings cycle hasn't even begun yet.

Don't consider this a time to stay on the sidelines. This is a time of great opportunity for option traders. You just have to know what type of trades to make and keep your position sizes small and a bit more in cash during a high volatility environment. The reason I like to have a bit more cash available is to be able to take advantage of the big down days when the VIX is in the 40's. That way I have more ammunition to sell more spreads at higher volatility levels.

Also, you have to know what types of spreads to trade during this environment. Trade verticals or condors. Stay out of calendars or diagonals when volatility is this high. Calendars and diagonals or long volatility plays and are extremely expensive at this time. There just is not a lot of room for them to further expand. With verticals and iron condors, you can move them further away from the ATM strikes and still receive a hefty premium for them. Perhaps you have a market bias. If that is the case, then unbalance your condors. You could have a one-dollar wide put spread with a two-dollar wide call spread. If the credit you collect is $1.00, then you can't lose money to the downside and you have a $1.00 at risk to the upside. You would be surprised how many ETF's allow you to construct these positions in this high volatility environment.

Let's take a look at one right now in the IWM:

By collecting $1.00 in premium between the two verticals, I have constructed an unbalanced Iron Condor that cannot lose money from a downward move. The IWM can go to $0.00, and the position will break even. The risk of the position is to the upside. With a two-dollar width on my call spread, I have the potential to lose the $1.00 credit I collected and an additional $1.00 from the width of the strikes. Thus, my risk is that the IWM rallies beyond $70.00.

Finally, take a deep breadth and relax. Position yourself effectively, diversify your portfolio, and reduce your contract size to spread out your risk among multiple strikes. Don't think of this as a time to sit on the sidelines. Think of this as opportunity.

thinkorswim, Inc. and its registered employee, Joe Mazzola, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.