To recap, the FTSE 100 volatility index (VFTSE) was trading around the 16 level on 25 October, up from 11.5 at the end of September. And although it subsequently peaked at 18.76 on 16 November, volatility on the blue-chip index has subsequently fallen sharply to 12 at close of trading on Thursday 29 November as equity markets rallied into their seasonal sweet spot.
This is precisely the scenario I had envisaged when I advised using traded options as a way of both exploiting the pick-up in market volatility and maximising returns from index trades in the final quarter of this year. That's because the implied volatility factored into the traded option price increases as market volatility rises and means the price of 'at-the-money' call and put options was far higher five weeks ago than it is now even though the FTSE 100 has risen in value in the interim period.