The current skew in implied volatility created by the recent sell-off make this the right time for using calendar spreads for downside protection heading into the crucial, and often cruel, October earnings season.
Even though I believe fundamentals such cash flow, earnings growth and profit margins ultimately bear out in the fullness of time, we know markets can remain “irrational for longer than you can remain solvent”.
An already narrow market has lost its leaders last week. Now this option indicator is flashing a rare but reliable bearish signal. Could a true correction finally be upon us?
Thanks to the huge spike in implied volatility a ratio spread not only provides additional downside protection, you actually get paid even if it doesn’t work, giving it 99% probability of turning a profit.
In the wake of Google’s (GOOGL) move to make Alphabet soup of their company much has been made of the fact they are adhering to Buffet’s noting in a letter to potential shareholders in 2004 ahead of Google’s initial public offering.