Whenever we come upon a holiday it's time to take a breath and step back. But as option traders, there is no such break as we are mindful of volatility and the option decay that constantly exists in these derivatives. Time is a critical component of option value, and when there are fewer days to trade an option the decay becomes a detriment to the option buyer. Over the next couple of weeks, the markets will be closed for a full session (Memorial Day). Hence, over the next 10 trading sessions there will be less trading hours availability. Options are not eligible for trading in the pre-market or after hours.
As you might expect, the option seller has an advantage in this case. Selling premium is a great strategy, and certainly much easier when volatility is at extremes. The volatility indicators we follow regularly are the VIX (SPX 500), CBOE Russell 2000 Volatility (Russell 2K) and CBOE NASDAQ 100 Volatility (Nasdaq). When these measures are trending they really move, and markets generally move opposite. When the VIX is surging, market players are buying protection and we often see the SPX 500 down sharply. The same goes for the other volatility measures.
Yet, we have seen of late these volatility indicators moving very little or just staying low. Some articles were out over the past week or so touching upon the historical significance of a low VIX reading, such as we had this past week with a dip under 10% in implied volatility. Realized volatility is even lower, in the 2% range. It becomes a challenge to extract out enough premium that makes a trade worthy of our attention. We may get lucky to receive a 1.35 credit on a twenty point spread going out two weeks! That is not much, but a symptom of low market volatility.
Further, the term structure of volatility, albeit steep has the furthest date hovering around 16%!! Normally we might see 20%+ volatility out 4-5 months. The current condition is defined by traders' lack of fear, plain and simple. A great environment for a premium seller to trade a market going sideways.