Many years ago, I was at an event in New York City when a colleague told me that while he respected the research that earned me the 2015 Charles H. Dow Award, he believed options were simply a playground for traders chasing quick, risky profits. I did not respond at the time, but I also did not forget what he said.
Most criticism of options trading is not about the instrument itself, but about how it is used. Without structure and discipline, options can become risky. With a defined process, they can produce consistent results.
That became clear again while reviewing the Wealth Acceleration Trader portfolio. Over the past 12 months, this strategy has produced a 100% -win rate and a return on margin of about 74.5%, demonstrating consistency across market environments. The results included six successful trading opportunities in March as headlines around Iran intensified.
This outcome was the result of applying a consistent framework grounded in the research behind my Dow Award-winning paper, which tested how volatility behaves and how it can be used to guide trade decisions.
One of the key findings from that research is that volatility signals such as the Cboe Volatility Index (VIX) are widely misunderstood. While spikes in volatility tend to occur near market bottoms, they provide no actionable timing. Peaks in volatility can only be confirmed after the fact, and the time between a spike in fear and the actual market low is inconsistent and unpredictable in real time. Elevated volatility does not indicate when to act.
The opportunity comes from what happens after volatility expands. The framework tested in the paper identifies periods when volatility becomes unusually high and takes action as it returns toward normal levels. The focus is on the transition, not the extreme.
Most traders attempt to act during the expansion phase, trying to anticipate a bottom. The approach tested in the research waits for volatility to move above its average and then fall back below it, signaling a shift in conditions.
The research also identified a limitation in using the VIX alone. It applies only to the S&P 500 and produces a single signal for the broader market. The “VIX Fix” addresses this by applying the same concept to individual stocks, allowing signals to develop at different times across securities rather than forcing a single market-wide decision.
Testing showed that applying this framework to large, mid, and small-cap stocks produced higher returns than a buy-and-hold approach, while investing only a fraction of the time. This reflects a process that engages the market selectively.
The research also addressed a common misconception about options strategies. Many believe that selling options is inherently high probability because a large percentage of contracts expire worthless. When all contracts are considered, including those closed prior to expiration, that percentage is much lower. Without a structured approach, outcomes are not as favorable as assumed.
When volatility is incorporated into a defined process, the results change. In real-time testing presented in the paper, a put-selling strategy based on this framework achieved a win rate exceeding 90%. These results were achieved by entering trades after volatility began to normalize rather than during expansion.
The framework was tested across multiple market environments, including both rising and declining markets, demonstrating that the approach does not depend on a specific set of conditions.
The objective is to respond to measurable changes in market behavior.
The objective is consistent, repeatable income.
Options are not inherently risky. Unstructured decision-making is. When a strategy is rule-based and consistently applied, outcomes become more consistent.
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