I have always believed that where there is peril, there is opportunity; where there is misfortune, there is also fortune. That is the manner in which I approach the current highly volatile and unpredictable market. I realize that many a man and woman with substantial trading prowess has succumbed to unusual losses, but I still contend that there are opportunities. Finding these opportunities requires a very stable constitution and an ability to wade through the daily predictions of financial doom. There are a number of ways to benefit from this financial chaos but we must tread very carefully. Two of the top seven biggest moves in the market percentage-wise occurred THIS MONTH!! All the other leaders were from the Great Depression Era. Yikes.

An extremely volatile market can have many of us gulping Tums and questioning our abilities, but it can also provide unique opportunities in many of the same instruments we already trade. In my case I generally trade broad-based index ETF's and the options associated with them. The movement we are seeing in these indices on a daily basis is similar to what we would see in a month, or even a year!! How is THAT beneficial to my trading?? Very simply, it requires less capital to return the same amount. If I normally trade 1,000 shares of stock or 10 option contracts to achieve my notional profit target, I can do it with 200 to 300 shares and 2 to 3 options now. The moves are that great and that quick. I am throwing less money on the table and reducing my risk capital.

Have you ever been to an extremely overpriced restaurant with a crowd when the bill arrives? Everybody gets alligator arms and wants no part of committing to that. That should be your reaction to this market. I will pay a portion, but I am definitely not going all in! And I do not have to; I can enjoy Fois Gras returns on a burger budget.

Next, we option traders realize volatility can present some nice opportunities. If you are in the business of selling options to collect premiums and are willing to do so in a risk defined manner with call or put verticals, a VIX above 50 can look compelling. Even covered call writes on many of the most stable (HAHA does that exist?) stocks like GE are yielding some unseen returns. At these levels, selling naked puts on some ravaged stocks starts to make sense because the elevated premiums mean you could get them at an even steeper discount to the current stock price. These strategies of selling call verticals, put verticals, covered call writes, or naked puts do have some peril. There are NO lay-ups in this market, but I can sell call or put verticals 12-15% from the current price here in many broad based indices with a month to expiration and still collect nice premiums. Six months ago I would have been selling these 3-4% from the current trading price.

Finally, the ability to execute these and many other trades can be made easier in these markets. While many folks are dismayed by the sudden increase in width between the bid and ask price in stocks and options, the herky-jerky market has a better chance of finding your price if you remain steadfast and stubborn. The market resembles a ping pong ball; I have found myself looking at an execution shortly after I am filled and wondered how it could possibly have occurred. It encourages me to place trades at normally unattainable prices and hope for a stray ball.

Happy Trading!!

thinkorswim, Inc. and its registered employee, Steve Quirk, 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.