For investors looking for some low-cost options plays, time may be running out.
During the past two months, options traders have had the luxury of a market in which there was little volatility, a result of which was plenty of options trading lower than they normally would. Because volatility is a major component of an option's price, low volatility typically results in relatively lower options prices.
With the sharp downturn in the market Friday and continuing weakness through midday Monday, that comfort level seems destined for the history books.
Paul Foster of
in Chicago, said that some upcoming events should increase the price of options, including end of the quarter window dressing by money managers, earnings warning season and the September employment report, which will be released the first Friday in October.
A prime reason for the relative cheapness in options prices is that implied volatility, one of the major components in an option's price, has been low lately. But Foster doesn't expect those conditions to last much longer, especially in the face of the aforementioned events.
Implied volatility is the annualized measure of how much the market thinks a stock or index can potentially move. Typically, implied volatility rises ahead of earnings season and big economic reports, for example.
As for cheap volatility ideas, the Skupp-Seidman options team at
highlighted several in a note to clients Monday:
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