In This Issue: Market Mayhem or Opportunity? Like It or Not, Volatility is Here.

Markets don’t move in straight lines—especially not in the world we’re trading in today. Last week, the S&P 500 officially entered correction territory before snapping back with a force that left traders scrambling to adjust their positions. The culprit? A cocktail of trade war escalations, fresh tariffs from Washington, and retaliatory moves from global partners.

For the average investor, this kind of turbulence is unsettling. For options traders, it’s an open field of opportunity. Volatility isn’t just a byproduct of uncertainty—it’s the raw material from which options strategies are built. While stock traders were busy asking whether the market would crash or recover, options traders were eyeing one thing: the pricing of risk.

And that’s the real story here. The market’s sharp selloff pushed implied volatility higher, inflating options premiums across the board. Then, just as fear peaked, Friday’s rally sent volatility crashing, squeezing traders who had loaded up on expensive puts. This cycle—fear-driven IV spikes followed by sharp reversions—is what defines the options landscape.

Right now, we’re in a market where short-term implied volatility remains elevated, but options pricing isn’t always reflecting reality. That’s where the edge is. Some ETFs are offering bloated premiums ripe for selling, while others—especially in rate-sensitive sectors—are still mispricing risk. Understanding which trades to take, and which to avoid, is the difference between playing defense and exploiting opportunity.

This isn’t a time for guesswork. It’s a time for strategy.

In this week’s issue, we break down:

• 📈 Market Snapshot & Commentary: A deep dive into the latest market moves, including how last week’s correction and rebound reshaped volatility expectations.

• 📜 Investment Quote of the Week: Nassim Taleb’s insight on why “volatility is the only asset class” and what that means for options traders.

• 📊 The Implied Truth: Weekly Options Data & Sector Trends: Identifying the best premium-selling setups, mean reversion trades, and sector flow trends.

• 🛠️ High-IV Trades: Which ETFs have historically inflated options premiums—ideal for selling strategies like iron condors and credit spreads.

• 📉 RSI Extreme Trades: Overbought and oversold ETFs with the highest probability for mean reversion plays.

• 🔥 Sector Strength & Weakness: Where capital is flowing and which sectors are primed for trend continuation or reversal.

• 📰 Weekly In-Depth Articles:

  • Tuesday, March 11: The Final Checklist—What to Look for Before Placing Every Options Trade

  • Thursday, March 13: Look in the Mirror—Why Your Biggest Trading Edge is You

• 📚 Educational Corner: Beyond 60/40—How options strategies can enhance risk-adjusted returns in a modern portfolio.

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Options trading isn’t about luck—it’s about strategy, discipline, and risk management. Too many traders chase trades without a plan. That’s why I’m launching three specialized trading services to help you turn options into a structured, repeatable system.

📈 Market Snapshot & Commentary

The trading week ending March 14, 2025, was a testament to the market's inherent volatility and the intricate dance between policy decisions and investor sentiment. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all experienced significant fluctuations, reflecting the market's sensitivity to geopolitical and economic developments.​

Market Performance Overview:

• S&P 500: The index closed Friday at 5,638.94, marking a 2.1% gain for the day. However, this uptick wasn't sufficient to offset earlier losses, culminating in a 2.3% decline for the week. ​

• Dow Jones Industrial Average: The Dow rose 1.7% on Friday, ending at 41,488.19. Despite this rebound, it recorded a weekly loss of 3.1%. ​

• Nasdaq Composite: The tech-heavy index saw a 2.6% surge on Friday but concluded the week down by 2.4%.

Key Influences:

1. Trade Tensions: President Trump's escalating trade disputes, particularly with major partners like Canada, Mexico, China, and the European Union, have injected uncertainty into the markets. The imposition of tariffs and the threat of further measures have raised concerns about potential economic slowdowns. ​

2. Market Correction: The S&P 500 entered correction territory, dropping over 10% from its recent peak, a reflection of investor anxiety over the ongoing trade conflicts and their possible repercussions on global economic growth. ​

3. Corporate Earnings: Companies with significant international exposure are grappling with the implications of tariffs, leading to cautious earnings forecasts and heightened market sensitivity to quarterly reports.​

Looking Ahead:

Investors are advised to remain vigilant, considering both the opportunities and risks presented by the current environment. Diversification and a focus on long-term investment strategies may help mitigate short-term volatility.

🔹 Market Meter:

📜 Investment Quote of the Week

Options trading has long been viewed as the domain of speculators—traders placing leveraged bets on stocks soaring to the heavens or cratering into oblivion. But for those who understand the craft, options aren’t about predicting direction. They’re about something more fundamental, more elusive: volatility.

Volatility is the heartbeat of options pricing, the force that dictates whether a trade flourishes or flounders. Traders fixated on picking market direction are playing a game of probabilities with incomplete information. A stock can rise, yet an options buyer can still lose money. A stock can fall, yet an options seller can still turn a profit. The missing piece? The magnitude and speed of movement, which is what volatility measures.

The Mispriced Bet on Market Stability

Most investors assume the market will behave rationally. Options traders know better. Volatility is mean-reverting—low volatility breeds complacency, which eventually leads to its expansion. Conversely, when panic ensues and implied volatility spikes, cooler heads prevail, and vol compresses.

Understanding this dynamic is crucial because options premiums are built on volatility expectations, not just the price of the underlying asset. Selling options in a low-volatility environment might seem appealing—after all, stocks don’t move much, and premiums seem like easy money. But if volatility surges, those premiums—once a steady trickle of income—swell into liabilities. You weren’t selling options; you were selling insurance at bargain rates before a storm you didn’t see coming.

Conversely, buying options in a quiet market without a clear catalyst is an exercise in paying for an asset that loses value by the second. Every moment that passes without a significant price move chips away at your premium, thanks to the relentless decay of time value—theta.

The Chessboard of Volatility

Trading options without grasping volatility’s role is like playing chess without knowing how the queen moves. You might get lucky for a while, but eventually, a more skilled player—one who understands the subtleties of positioning and timing—will clean the board.

Professional options traders don’t just pick stocks; they structure trades based on volatility expectations. They analyze whether implied volatility is high or low relative to historical norms, how it might expand or contract, and whether the market’s pricing of risk aligns with reality.

This is why market legends like Nassim Taleb argue that "volatility is the only asset class." It’s the one variable that traders can consistently exploit, regardless of whether stocks go up, down, or sideways.

The Lesson for Traders

If you’re an options trader, stop thinking like a stock picker and start thinking like a volatility strategist. Instead of asking, “Will this stock rise or fall?” ask, “Is volatility overpriced or underpriced?” If volatility is low and primed to expand, buying options—preferably with defined risk—can be a smarter move than selling. If volatility is sky-high, selling options, structuring spreads, or managing risk through iron condors and other premium-selling strategies can put the odds in your favor.

Because in the world of options, it’s not just about being right on direction. It’s about being positioned for the right kind of movement.

📰 Weekly In-Depth Articles

🗓️ Tuesday, March 11th: The Final Checklist: What to Look for Before Placing Every Options Trade 
🗓️ Thursday, March 13th: Look in the Mirror: Why Your Biggest Trading Edge is You

📊 Weekly Table Overview: The Implied Truth

This table provides a comprehensive snapshot of key options, volatility and momentum indicators for major ETFs, helping you identify trading opportunities in options markets. It’s designed to highlight where the market is offering rich premiums, potential trend reversals, and overbought/oversold conditions—all critical for options strategies.

Options trading is an exercise in probabilistic thinking. Every implied volatility spike reflects uncertainty, every put/call ratio extreme signals emotion, and every RSI swing is a psychological pulse check on price action.

Options pricing reveals what traders fear most. RSI tells us when they’ve overreacted. Combine the two, and you have a roadmap for premium-selling opportunities, market momentum shifts, and potential reversals.

This week, we focus on premium-selling opportunities, overbought/oversold signals, and sector flows, distilling market complexity into actionable trades.

1️⃣ Premium-Selling Opportunities (Overpriced Options)

When IV Rank > 50 and IV Percentile > 50, option prices are historically inflated, creating prime conditions for premium sellers.

🛠️ High-IV Trades (Best for Selling Premium)

💰 XLI – Industrials (IV Rank: 77.4, IV Percentile: 88%)
💰 XOP – Oil & Gas (IV Rank: 57.0, IV Percentile: 87.8%)
💰 XLF – Financials (IV Rank: 59.6, IV Percentile: 82.6%)
💰 URA – Uranium (IV Rank: 81.5, IV Percentile: 81.7%)
💰 IWM – Small Caps (IV Rank: 38.8, IV Percentile: 84.9%)

📌 Key Takeaway: High IV makes these ETFs ideal for selling strangles, condors, and credit spreads.

2️⃣ RSI Extreme Trades – Mean Reversion Setups

Instead of looking at just one RSI level, we combine RSI(2), RSI(7), and RSI(14) to find ETFs where momentum is universally stretched across multiple timeframes.

🚨 Overbought ETFs – High Probability for a Pullback

RSI(2), RSI(7), and RSI(14) all signaling overextension

🔻 FXI – China

• RSI(2): 94.4 → Near max short-term overbought

• RSI(7): 70.6 → Short-term trend stretched

• RSI(14): 66.7 → Medium-term also extended

• IV Rank: 33.5% (not ideal for premium selling, but a directional play works)

🔻 GDX – Gold Miners

• RSI(2): 94.3 → Extreme short-term spike

• RSI(7): 72.8 → Short-term momentum strong

• RSI(14): 65.8 → Medium-term also nearing highs

• IV Rank: 40.5% (not overly high, but solid for bear call spreads)

🔻 XLE – Energy

• RSI(2): 87.1 → Short-term push

• RSI(7): 61.0 → Approaching overbought

• RSI(14): 53.4 → Medium-term still has room

• IV Rank: 45.6% (decent for premium selling)

Oversold ETFs – High Probability for a Bounce

RSI(2), RSI(7), and RSI(14) all in extreme weakness territory

🔹 XRT – Retail

• RSI(2): 42.7 → Still pressured

• RSI(7): 24.7 → Oversold short-term

• RSI(14): 25.9 → Deeply oversold medium-term

• IV Rank: 54.0% (great for bull put spreads)

🔹 IWM – Small Caps

• RSI(2): 72.1 → Recovering but still weak

• RSI(7): 38.9 → Still in a downtrend

• RSI(14): 34.5 → Hovering near oversold

• IV Rank: 38.8% (high IV, good for cash-secured puts or bull put spreads)

🔹 XLV – Healthcare

• RSI(2): 51.1 → Stabilizing

• RSI(7): 36.9 → Approaching oversold

• RSI(14): 44.1 → Lower than average but not extreme

• IV Rank: 36.0% (not an aggressive premium-selling candidate, but bullish reversal possible)

📌 Key Takeaway:

• FXI, GDX, and XLE are overbought across multiple RSIs—great for short call spreads or directional bearish plays.

• XRT, IWM, and XLV are oversold across all timeframes—potential bull put spreads or long call opportunities.

3️⃣ The VIX & Market Volatility Outlook

🧨 VIX: 21.77 (IV Rank: 45.9%)

• Above 25 → Expect violent swings and hedging demand to increase

• Below 20 → Market complacency, premium selling becomes tougher

📌 Key Takeaway:

• Volatility remains in the ‘goldilocks zone’ for premium sellers.

• If VIX spikes past 25, expect dealers to hedge aggressively, leading to sharper swings.

4️⃣ Sector Strength & Weakness – Where’s the Money Flowing?

Options traders don’t just look at price movement—they follow the flow of volatility and positioning.

📈 Strongest Sectors (Bullish Momentum)

🔥 GDX – Gold Miners (RSI 72.8, IV Rank 40.5)
🔥 XLE – Energy (RSI 61.0, IV Rank 45.6)
🔥 XOP – Oil & Gas (RSI 54.4, IV Rank 57.0)

📉 Weakest Sectors (Bearish Pressure)

🚨 XRT – Retail (RSI 24.7, IV Rank 54.0)
🚨 IWM – Small Caps (RSI 38.9, IV Rank 38.8)
🚨 XLV – Healthcare (RSI 36.9, IV Rank 36.0)

📌 Key Takeaway:

• Gold & Energy are leading, but nearing exhaustion.

• Retail & Small Caps are under pressure, potential bounce plays.

5️⃣ Smart Options Trades for This Week

Premium-Selling Trades (High IV & Strong Trend)

✅ XLI, XLF, XOP – Iron condors, credit spreads, or short strangles
✅ IWM, URA – High IV remains, strangles or condors work

Directional Plays (Momentum & Sector Strength)

📈 Long Calls on XRT, IWM, XLV – Oversold bounce setups
📉 Short Calls on FXI, GDX, XLE – Overbought conditions may lead to profit-taking

Final Takeaways

• Premium-Selling Trades → XLI, XLF, XOP, IWM, URA

• Mean Reversion Trades → XRT, XLV, QQQ

• Sector Strength → GDX, XLE, XOP

• Sector Weakness → IWM, XRT, XLV

📊 Quick Reference: The Implied Truth Table

• Symbol: ETF ticker (e.g., SPY, QQQ, IWM).

• Last: Latest closing price.

• P/C Ratio: Put/Call ratio—>1 = bearish, <1 = bullish; extremes can signal contrarian setups.

• Impl Vol: Implied Volatility—higher IV = richer premiums, more expected movement.

• IV Rank: IV vs. past year’s range—0% = lowest, 100% = highest; >35% favors premium-selling.

• IV Percentile: % of time IV was below current level—adds context to IV Rank for volatility shifts.

• RSI (2/7/14): Momentum indicator—>80 = overbought, <20 = oversold; shorter RSIs react faster.

• High/Low Graph: Shows price vs. 52-week range—+% = near highs, -% = near lows.

Use this to spot volatility trends, premium opportunities, and momentum shifts at a glance. 🚀

📚 Educational Corner: Options Deep Dive

🎓 Topic of the Week: Beyond 60/40: Enhancing Portfolios with Options-Based Strategies

For decades, the 60/40 portfolio—a mix of 60% equities and 40% bonds—has served as the bedrock of traditional asset allocation. Designed to balance growth and stability, this framework has weathered various market cycles. However, shifting market dynamics, persistently low bond yields, and heightened volatility have led many investors to question its long-term viability. Enter options-based strategies—a compelling alternative that enhances risk-adjusted returns and provides diversification benefits beyond conventional asset allocation.

The Erosion of 60/40’s Effectiveness

The 60/40 model assumes that stocks and bonds will maintain their historical inverse correlation, with bonds acting as a stabilizer during equity downturns. Yet, in recent years, this relationship has weakened. Rising interest rates, inflationary pressures, and synchronized market movements have exposed the limitations of the traditional portfolio approach.

Moreover, bond yields remain structurally low, offering less downside protection and income potential than in previous decades. According to the CBOE, the rapid growth in derivative-based funds reflects this shift—assets under management (AUM) in "derivative income" funds surged from $20 billion in 2019 to over $160 billion, while "defined outcome" funds expanded from $3 billion to $60 billion during the same period. This trend underscores the increasing reliance on options-based strategies to manage portfolio risk and enhance returns.

Options as a Portfolio Enhancement Tool

Options, when used strategically, can serve as a valuable complement to traditional portfolios. Whether for income generation, risk management, or enhancing returns, options-based strategies provide flexibility that the static 60/40 model lacks. Below are three primary ways options can improve portfolio outcomes:

1. Income Generation Through Premium Collection

Investors can use options to generate additional income by selling options contracts, a strategy that aligns well with conservative portfolio management. Two common approaches include:

• Covered Calls: Selling call options against existing stock holdings to collect premium income while retaining exposure to the underlying asset.

• Cash-Secured Puts: Selling put options on securities investors are willing to buy at a lower price, allowing them to earn premiums while potentially acquiring stocks at a discount.

Both strategies provide an income stream that can supplement dividend yields and bond coupon payments, making them particularly attractive in low-yield environments. Empirical evidence from the CBOE supports their effectiveness—studies show that a covered call strategy, achieved an average annualized premium income of 24.46% over a nine-year period. Additionally, a covered call strategy exhibited 25% less volatility than the DJIA and 46% less than the Russell 2000, highlighting its potential to enhance risk-adjusted returns.

2. Risk Management and Downside Protection

Options can function as portfolio insurance, reducing drawdowns during market downturns. Protective puts, for instance, allow investors to hedge against significant losses by providing the right to sell an asset at a predetermined price. Additionally, structured spreads, such as collars, can limit downside risk while still allowing for moderate upside participation. By incorporating options into a broader risk management framework, investors can mitigate large losses without sacrificing growth potential.

3. Enhanced Returns with Defined Risk

Certain options strategies can help investors achieve targeted returns while managing risk exposure. Examples include:

• Iron Condors: A range-bound strategy that profits from low volatility by selling both call and put spreads on an underlying asset.

• Diagonal Spreads: A sophisticated approach that allows investors to capitalize on time decay while maintaining directional exposure with lower capital requirements.

These strategies can be particularly useful in market environments where traditional asset classes struggle to deliver strong risk-adjusted returns.

Implementing an Options Overlay in a Traditional Portfolio

A well-structured options-based portfolio does not require abandoning the 60/40 framework entirely. Instead, investors can integrate options as an overlay, adjusting exposure based on market conditions. This dynamic approach allows for:

• Greater adaptability to changing macroeconomic factors.

• Enhanced income streams beyond dividends and bond yields.

• More precise risk control through strategic hedging.

By allocating a portion of a portfolio to options strategies, investors can optimize returns while maintaining a disciplined approach to risk management.

Conclusion: A New Era of Portfolio Construction

The traditional 60/40 portfolio served investors well in the past, but today’s market environment demands a more nuanced approach. Options-based strategies provide a flexible and efficient way to enhance income, mitigate risk, and improve risk-adjusted returns. By thoughtfully incorporating options into an investment framework, investors can build more resilient portfolios that are better equipped for the complexities of modern markets.

As financial markets evolve, so too must portfolio construction methodologies. Beyond 60/40 lies a spectrum of strategies that empower investors to take control of their returns while safeguarding against uncertainty.

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Thanks again for your attention! I hope you found some, if not all, of the aforementioned info worthy of your time.

Trade Smart. Trade Thoughtfully.
Andy Crowder
Founder | Editor-in-Chief | Chief Options Strategist
The Option Premium