The subject of "crash strategies" has got me fascinated now...
I'd be interested in hearing people's thoughts on pre, during, and after-crash strategies.
The most obvious one I can think of, is for the scenario of being caught with long stocks. Rather than selling into a panic, the most rational thing to do, assuming that one didn't anticipate, and is now caught in a crash, is to write covered calls at whatever one perceives to be the peak of option premiums. A more bold strategy would be to write naked puts on one's holdings. (Assuming that one is prepared to buy if exercised.)
An anticipatory move, if one believes that a crash may be coming, and that one also believes that at least near-term weakness is likely, is to buy puts more than one month out in anticpiation. If a crash occurs, and one feels an immediate recovery is unlikely, one could then convert the position to a calendar spread, selling the near-term puts at the same strike, taking advantage of the expanded VIX.
Of course, if you believe that a quick recovery is likely, you'd want to simply close-out the position at the perceived VIX peak. |
