Operations Performance · March 2026
In atypical situations such as the current one, where the main indices are practically flat and trading within sideways ranges, I have decided to structure two strategies that, taken together, work very efficiently: a risk reversal on the VIX and a systematic sale of puts on the Nasdaq.
The Market Context
This situation is clearly evident in today's environment. The Nasdaq, the main global index associated with technology and innovation, remains practically flat and trading within a relatively well-defined sideways range.
This behavior is driven by a complex macroeconomic context, with the icing on the cake being the geopolitical uncertainty (U.S.-Iran tensions), accumulated from a restrictive monetary policy and continuous adjustments in growth expectations. In this scenario, the market is at a point of temporary equilibrium between bullish and bearish forces, resulting in erratic movements without the development of a clear trend, but with volatility in each movement.
In these types of sideways markets, where the major indices do not show a clear trend, the Traditional directional strategies are becoming less effective, since the market does not generate sufficiently sustained movements. With this in mind, it makes more sense to develop strategies that take advantage of the relative price stability and the dynamics of market volatility, such as the two I describe below.
Structure 01
This strategy is based on a structure risk reversal, which consists of purchasing a call OTM and sell a put OTM. This combination generates a relatively neutral initial zone, allowing positioning with bullish exposure while maintaining a range margin where moderate downward movements do not aggressively affect the position.
The operation is on the VIX, an index that measures the implied volatility of the S&P 500 and typically fluctuates within certain structural ranges over the course of market cycles. I noticed that one of the levels at which the VIX tends to stabilize during normal market conditions is around 18,50, where market fluctuations place us at a key strategic vantage point.
Schematic payoff diagram for a VIX risk reversal. Created by Diego García del Río.
In this environment I sold a put with strike 18.50, which means we are obligated to take a position if the VIX falls below that level. Even so, because of market fluctuations that keep it constantly within those levels—unless it spikes due to uncertainty—the structure remains virtually neutral.
In addition, the time is playing in favor of the position: The sold put loses value due to time decay (theta decay), which partially offsets the depreciation of the purchased call and maintains the balance of the structure.
The A call OTM gives me convexity of the strategy, which allows me to capture those sharp spikes in the VIX. This type of behavior typically occurs in times of market stress: macroeconomic or geopolitical events trigger rapid increases in volatility—in this case, any stressful situation arising from the U.S.-Iran conflict. In times of tension, volatility tends to escalate rapidly, generating explosive movements that can be captured through option structures with positive convexity and implicit leverage, which is exactly what I'm looking for.
Structure 02
In addition to the risk reversal of the VIX, I also establish an opposite exposure in VIX futures. Nasdaq (NQ) by means of the systematic put selling.
The goal is twofold: first, to capture the option premiums through the sale of volatility; and second, in the event of assignment, to gain exposure to the index at a effective price below market price, which improves my average entry point.
Schematic payoff diagram for a put option on the NQ. Created by Diego García del Río.
If the options expire without being exercised, I profit from the premium I received from the sold put. On the other hand, if the market corrects and the options are exercised, my long position is added at a more favorable price, while the premiums I previously collected act as risk buffer.
Talking about the determination of points per dollar, each premium received from the sale of options increases the margin of safety of the long position. Literally, these premiums act as a cushion against market downturns, since they reduce the effective price at which I acquired the position. Simply put: I theoretically incorporate the premium received into the average price of the long position by subtracting it from the entry price. This means that each new premium received lowers the average cost, which increases the range of price declines the market can absorb before incurring net losses.
Premiums collected not only generate direct returns, but also improve the strategy's break-even point, increasing the operating margin in the face of adverse market movements. In this way, I maintain exposure to the Nasdaq with an implicit cushion generated by the premiums, which improves the position’s risk-return profile.
Integrated Vision
When used together, these two strategies help balance exposure to various changes in market conditions. The long position in The VIX acts as a hedge against a bullish breakout in volatility, since during periods of financial stress, the VIX tends to rise rapidly. Given the geopolitical tensions between the U.S. and Iran, this behavior takes on greater significance, as such conflicts tend to trigger sharp increases in implied volatility.
Furthermore, the fact that the market has remained at this level for an extended period a sideways range with relatively contained volatility increases the likelihood that any disruptive event will cause an abrupt expansion of volatility.
Schematic overview of the combined payoff for the two structures. Created by Diego García del Río.
The operations of sale of puts on the Nasdaq (NQ) allows me to build exposure to the index at increasingly favorable effective prices, as it is constantly trading, either by capturing premiums or through allocations to lower levels.
In this way, the strategy combines fall protection with progressive accumulation of index exposure, a defensive structure in the short term, but with constructive bias in the medium term. This allows us to position the portfolio advantageously to capitalize on the recovery when the market returns to more realistic valuation levels, based on historical performance «mean-reverting» that tend to occur during corrections in the main equity indexes.
Frequently Asked Questions
A risk reversal involves buying an out-of-the-money (OTM) call and selling an out-of-the-money (OTM) put on the VIX. It creates an initial position that is relatively neutral, with a bullish exposure to volatility. The sold put (strike 18.50) provides theta decay that offsets the depreciation of the purchased call, and the out-of-the-money call provides the convexity that captures sharp spikes in volatility during periods of market stress.
This involves the recurring sale of put options on Nasdaq (NQ) futures with a twofold objective: to capture premiums by selling volatility and, in the event of exercise, to gain exposure to the index at an effective price below the market price. Each premium collected reduces the average cost of the long position and acts as a cushion against declines.
Because they balance each other out: the long position in the VIX acts as a hedge against an upward breakout in volatility (episodes of geopolitical stress), while selling puts on the NQ builds exposure to the index at increasingly favorable prices. Together, this strategy combines protection against short-term declines with a constructive bias over the medium term, taking advantage of the mean-reverting nature of corrections.
This is because, in sideways markets, indices do not follow a clear trend, and the market does not generate sufficiently sustained movements. In this context, it is more efficient to structure strategies that take advantage of relative price stability and volatility dynamics, such as risk reversals on the VIX and the systematic selling of puts.
Markets by Diego is the financial analysis platform of Diego García del Río, a Spanish economist and independent private investor, and founder of Hill Valley Consulting. He publishes asset analyses, macroeconomic reports, and strategies involving options and leveraged ETFs, along with tracking of actual trades in international markets.
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