Just think about how many traders and investors bought call options in the popular VXX last week when the market sold off. The problem is that many retail traders may have bought put options that expire this Friday. As you know, volatility is crumbling, falling by nearly 20 percent.
Traders should note that the institutional investors play a lot of games with individual equities ahead of options expiration. This Friday is options expiration for the month of August. Last week it was reported that call buying in volatility was at an all-time high after last Thursday's stock market decline. As of Monday, many of those trades are sharply out of the money as the institutional investors flip the switch and rally stocks. The lesson here is not to chase parabolic moves after they happen. This one rule will help keep many investors out of trouble, especially ahead of a monthly options expiration.
