Question

You are (almost) convinced that the aggregate market is going to exhibit low volatilities over the next 3 months. You are considering a bet on the low volatility. On the one hand, you want to establish a trade to take advantage of low volatilities. On the other hand, you don’t want a strategy that will result in large losses should the volatility really go up over the next few months. What would be a good options strategy in this case? Briefly discuss when you would make profits and in what situations would you incur losses? You can look up SPY and index option quotes online; use these numbers to explain your strategy.

Answer 1

If you are sure about the low volatility of the stock then you can go away with selling up with the covered calls and covered puts which will help in gaining the premium because the markets moment is limited and there is lesser of the volatility.

for example if you go for a covered call option you will sell in the money options which are call options of a stock and hold the stock in a portfolio so you'll hedge against any adverse moment and you will also be gain on premium eating because of low volatility.