How to Find Options Opportunities When the VIX Is Low

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed How to Find Options Opportunities When the VIX Is Low. Here’s an excerpt from the episode:

[Tobias] It’s quite a change from a year ago when there was really no other game in town other than Mag 7. But the market has been spooked a little bit by that CapEx spend, even though probably it’s got pretty good returns on incremental capital. The market doesn’t seem to like that free cash flow disappearing similar to what happened to Meta when it was transitioning into the Metaverse and it crashed a little bit.
I think that’s one of the nice things about options in the stocks is that you can see when the stocks are down, the option prices are often elevated because there’s a little bit more vol in the stock. If you’re looking at the VIX, you might not realise because the 15s are pretty low VIX. That’s a pretty quiet market, no expectation for much happening.

But in individual names, it could be quite elevated vol. It’s a good way to identify some of these opportunities, a good window when you get a little bit of elevated vol in a stock that you’d like to own. The Mag 7 has offered opportunities this year.

They’ve flagged the market a little bit this year, which probably nobody expected a year ago. There have been these little windows where you could put these positions on, particularly if you’re looking at the options, which have had a little bit of elevated vol and get better entry prices and engineer a slightly better entry price again.

[Tim] Yeah, I would agree. Software was a good example that we talked about when Salesforce was down a lot, Adobe was down a lot, HubSpot. Those are companies with strong balance sheets and strong free cashflow profiles.
They offer really good opportunities to sell puts significantly below where the market was at, at really attractive premiums. Then when they bounced, we’re able to lock in profits on them.