The market is starting out 2015 with many volatile sessions. We have seen many triple digit point swings for the Dow Jones. We started out the year with a 3% pullback, only to gain back all of the lost value in a matter of days. Now, we are possibly going to test last week's lows. This kind of volatility is evidenced by a VIX at 20. With the VIX hovering at levels that usually correspond with daily moves of 1%, I think now is the time to either be long calls/puts or long butterflies.

By being long calls/puts outright you expect there to be a rather sharp move, and are willing to pay the high premium to do so. In a time where the implied volatility is so high, it is hard to make that much money trading vertical spreads, because it takes much longer for them to go to full value/zero value (depending on whether you bought or sold the spread). So, this means that if you want to play for small range-bound moves you must trade butterflies.

Butterflies allow you to pick a range where you expect to be profitable. In doing so, you can end up making a few times your money if it ends up in the right range. Many times it is hard to pick where a stock is going to end. However, in weeks like this one, an option expiration week, you can play for a ‘pin’. A pin is when the market makers somewhat manipulate the stock so it ends up at a certain price that inflicts ‘max pain’ for call and put buyers.

I have two trades on that are playing for this. First, a SPY 197/200/203 put fly at $.40. I believe that the SPY will slowly drift down to 200, and pin at that level. This trade could end up making over 500% if SPY closes around 200. The second trade I have on is an AAPL 106/109/112 put fly for $.60. I believe AAPL pins at 110 this week, but because I was a bearish on this week's action, I decided to give myself a little more room to the downside and I shorted the 109 puts instead of the 110s.