VIX and the market are generally inversely correlated, meaning that, on average, VIX moves in opposite direction of the market. However, there is another key component that determines the direction of the VIX: the magnitude of the down move.

Generally, the VIX increases as there are more down days AND the magnitude of those down days increase. However, if there is a mild down day amidst the larger down days, VIX may actually decline on the mild down day because the magnitude of said down day was not as bad as recently experienced by the market.

What makes this most recent selloff “silent” is that half of the losses we experienced were outside of normal trading hours. While the subsequent rally after the March 23rd low was mainly from normal trading hours.

Compare this to 2008 where 90% of the losses came from normal trading hours.

tastytrade developed a set of rules regarding capital allocation in margin accounts. Today, we found a way to apply the same rules to IRAs with one key adjustment.

When utilizing undefined risk strategies in IRAs, simply buy the 5 delta option to accompany the short option position. This will make your average buying power required for that trade roughly the same as a margin account while keeping the risk/return profile of the overall position the same. The capital allocation rules we have for margin accounts will now apply to IRAs as well.

Country ETFs are important components for portfolio diversifications. Today we show you how these ETFs performed in the past 15 years. We also show you how their correlations change in bull and bear markets.

How do outliers affect short premium positions during and at the end of the trade?

• SPY, 2005 to present
• 45 DTE
• Sold 30∆ Strangles (short 30∆ put and short 30∆ call) the day before an outlier move (+- 3, 4, and 5%)
• Held to expiration in order to study the entire 45 day period
• Observed the effects of the outlier move on the strangle P/L

We find that initially, our positions take a hit due to the outlier move, but at the end of the trade, our positions were profitable on average.

Market moves are generally seen as independent from one another. Although that is true for small moves (less than 1% in magnitude), larger moves tend to not be independent.

In other words, if a large move (greater than 2% in magnitude) is observed on any given day, there is a greater chance to see another large move tomorrow than the chance of seeing a large move on any given market day.

In fact, if we have a 5% move today, it is 37 times more likely to see another 5% move the next day than a 5% move on any given market day.

Does the unemployment report have any impact on the market?

tastytrade runs an extensive study that looks at the performance of all days relative to the performance of unemployment report days.

We find that there is no statistical evidence that unemployment report days carry any different returns or volatility than a randomly selected market day.

With IV so high across the board, what types of underlyings should investors be looking to trade?

We have to consider account size, risk tolerance, and desired daily P/L as our metrics that determine the types of underlyings to trade and the strategy to employ.

When looking at “types of underlyings” we have two generic classifications: individual stocks and ETFs. For strategies: we have defined and undefined risk trades.

Ultimately for lower risk, lower P/L and smaller accounts, investors may consider defining risk or trading ETFs as opposed to individual stocks. On the flip side for higher risk, higher P/L and larger accounts, undefined risk trades and individual stocks may fit better.

A question tastytrade has been answering a lot during the recent selloff is “what if we buy options instead?.”

In this segment, we take a look at why buying options is, on average, not a profitable long term strategy from both a historical performance lens and a conceptual lens (analyzing implied volatility versus realized volatility).

We find that the only time buying options is profitable is the period right before a selloff, but since timing markets is nearly impossible, the strategy is not feasible long term.

How accurate are markets at predicting recessions? tastytrade's Research Team crunched some numbers and examined some data to uncover the answer.

• S&P 500, 1970 to present
• Recorded all recessions since 1970
• Recorded number of large selloffs greater than 1% in each quarter

We find that the number of large down days is actually greatest in the quarter before the first quarter of a recession. During the recession, there are typically more down days than the average quarter, but not as many as the quarter preceding the recession.