Every serious options trader I know has a framework for volatility spikes. Most of them improvise. I don't. When the VIX crosses 25, I run the same three-step system I've refined over four years of selling premium through fear events. It removes emotion from the equation at precisely the moment emotions are highest.
Here's the exact system.
Why VIX Spikes Create Premium Opportunity
The VIX measures the 30-day implied volatility of S&P 500 options. When it spikes — and by spike I mean a move from sub-20 into the 25-35 range over a few sessions — it means market participants are paying elevated prices for downside protection.
That elevated price is the opportunity.
Options sellers collect premium. In low-volatility environments, that premium is thin. When VIX spikes, the same put spread that collected $0.80 in calm markets suddenly collects $1.80 or more. The probability of the underlying reaching the short strike hasn't changed nearly as much as the price — the fear premium inflates the implied move beyond what historical data supports.
My system is built around capturing this gap between implied and realized volatility. Historically, realized volatility over the next 30 days runs 20-30% lower than what implied volatility prices in during a spike. That structural overpricing is the edge.
Step 1: Scan for IV Rank Above 70
Not every spiking name is worth selling. My first filter is IV rank — the percentile rank of current implied volatility versus the past 52 weeks. An IV rank of 70 means current IV is in the 70th percentile of its own history.
When VIX spikes, IV rank tends to jump across the broad market, but it jumps unevenly. Some names go from rank 20 to rank 85. Others were already elevated and barely move. I want names that have moved the most — IV rank above 70 — because those are the names where fear premium is fattest relative to their own recent history.
My scan in thinkorswim uses three filters: IV rank ≥ 70, options volume ≥ 5,000 contracts that day (liquidity test), and stock price between $50 and $500 (sweet spot for spread width manageability). During a typical VIX spike above 25, this scan returns 40 to 80 names.
From those, I manually eliminate: anything with earnings within 21 days (earnings are a separate game), anything below $30 stock price (spreads get too narrow), and anything I have no view on fundamentally. I'm left with 10-15 names. I pick the 3-4 with the cleanest put structure — meaning the put skew is steep and the bid-ask on spreads is under $0.10 wide at the strikes I want.
Step 2: Sell Put Credit Spreads at -1σ, 30-45 DTE
Once I have my names, I execute the same structure every time: a put credit spread, short strike at approximately -1 standard deviation from the current stock price, with 30-45 days to expiration.
The -1σ level is calculated from the implied volatility of the at-the-money option. If SPY is at $530 and 30-day IV is 18%, one standard deviation is 530 × 0.18 × √(30/365) = approximately $25. That puts my short strike around $505. I round to the nearest clean strike — $505 or $500.
The long put is typically $5 below the short strike on SPY-sized underlyings. On smaller stocks, $5 or $10 depending on the liquidity.
Real example — March 2025 VIX spike to 29:
SPY was trading at $536. VIX had spiked from 17 to 29 in six trading sessions. My IV rank scan showed SPY at rank 82. I sold the SPY March 28 expiration 520/515 put spread (32 days to expiration at trade entry) for a credit of $1.85 per spread.
Breakeven on the downside: $520 - $1.85 = $518.15. Max loss: $5.00 - $1.85 = $3.15 per spread. Max gain: $1.85 per spread (if SPY stays above $520 at expiration). Return on risk: $1.85 / $3.15 = 58.7%.
At the time, $520 was approximately -2.5% from the current price, and the one-standard-deviation move over 32 days was calculated at -3.4%. I was selling a spread that had roughly an 82% probability of expiring worthless based on delta.
Step 3: Close at 50% of Max Profit
I never hold credit spreads to expiration. My rule is to close when I've captured 50% of the max profit — in this case, when the spread dropped from $1.85 to $0.93.
In the March 2025 trade, SPY stabilized above $530 over the following 18 days as the VIX mean-reverted back to 19. The put spread I sold for $1.85 was worth $0.93 on day 18. I closed it.
Why 50% and not more? Three reasons.
First, time risk. The final 50% of profit in a credit spread is the hardest to capture and takes the most time. A spread that goes from $1.85 to $0.93 in 18 days might take another 14 days to go from $0.93 to $0.47. Holding that extra two weeks exposes me to another vol event, another gap risk, for proportionally less reward.
Second, gamma risk increases near expiration. A credit spread close to expiration with the stock anywhere near the short strike has enormous negative gamma. Small moves can cause large P&L swings. I don't want to hold that exposure.
Third, capital efficiency. Closing at 50% frees up buying power for the next trade. In a VIX spike environment, opportunities compound. The capital I freed from the SPY spread immediately went into a new position.
Position Sizing: Never More Than 5% Per Trade
I size every credit spread trade at a maximum of 5% of portfolio capital at risk. That means for a $100,000 portfolio, max loss on any single trade is $5,000.
Using the March 2025 SPY example: max loss per spread was $3.15. $5,000 / $3.15 = 15 spreads maximum. I actually ran 10 spreads — more conservative because I had two other trades open simultaneously.
The 5% rule survives most scenarios. A simultaneous failure of three trades at max loss would cost 15% of the portfolio. Painful, not fatal. Recovery is possible.
I track position counts, not just individual trade size. During a VIX spike, I never have more than four credit spread positions open at once. I also check that my short strikes across all positions aren't clustered at similar levels — concentration risk in a correlation event is real.
Adjustment Rules
If a position moves against me and the spread reaches 100% of max loss ($3.15 in the SPY example), I close it. No exceptions, no rolling.
If the spread reaches 75% of max loss, I review: is this a specific company move or broad market? If it's broad market and VIX has re-spiked above 30, I may sell a smaller spread further out of the money to "repair" the position. I never add to a losing position in the same strike range.
The adjustment I most commonly make is the "rolling defense": if the stock drops toward my short strike with more than 14 days left, I can buy back the current spread and sell a new one further out of the money, same expiration, for a net credit. This extends the breakeven lower without adding duration.
The key discipline: any adjustment must be done for a net credit. Rolling for a debit means I'm paying to stay in a losing trade. That's a bad habit I've eliminated entirely from my system.
The Results Pattern
Across 14 VIX spike events (VIX ≥ 25) I've traded this system through since 2022, my win rate on the put credit spread component is 78.6%. Average credit collected: $1.94. Average amount captured: $1.12 (58% of max gain, slightly above my 50% target because some trades ran further after the close target was hit but I was slow to execute). Average duration: 19 days.
The two losing trades in that sample both involved earnings gaps I should have screened out. When I eliminate those two, the system's win rate is 100% across 12 trades. I don't claim that will hold — one sharp bear market will test it. What I do claim is that the structural edge is real: selling fear premium when VIX spikes is mathematically sound, and systematic execution is the only way to capture it consistently.
— Ruslan Averin, averin.com