By Steven M. Sears

When bad things happen to stocks, good things can happen for options investors.

When the market's directional trend is hijacked by forces that marginalize financial metrics like corporate earnings growth and profit margins, it's more significant than merely investor sentiment souring.

Such is the consequence of a pre-emptive war with Iran that has sent oil prices sharply higher and roiled stocks. The war initially caused a surge in options volatility, as evident in the rise in the Cboe Volatility Index, or VIX. The so-called fear gauge is now around 25.5, indicating demand for put options, which increase in value when stocks decline. And that offers long-term investors an opportunity.

Too bad changes in the market have rendered the VIX a less reliable trading signal.

For decades, investors have used the VIX to time stock purchases and identify the end of stock declines. It's a simple indicator: When the VIX is sharply above its long-term average of about 19, it has signaled the end of stock selling and a good time to buy stocks.

It has even inspired an options market ditty: When the VIX is high, it's time to buy; when it's low, it's time to go.

The VIX's usefulness is animated by a simple fact. Investors are always either too fearful or greedy. Taking the opposite side of the expressed emotion telegraphed by the VIX has often been prescient. When the VIX peaked around 90 during the 2008-09 financial crisis, telegraphing extreme fear that the financial system might collapse, stock buyers were rewarded.

But changes in how investors use options have weakened the VIX's signals.

As many investors confront retirement, options-selling exchange-traded funds, such as JPMorgan Equity Premium Income, have become popular investments for generating income. The funds sell S&P 500 index options to make money, which does something few people realize -- it suppresses the VIX, whose value is derived from S&P 500 put and call options.

On Monday, for instance, the VIX was at 31, which seemed subdued compared with an almost 100-point decline in S&P 500 futures. Perhaps this was because many investors were selling index options. By day's end, the VIX declined and stocks recovered after President Donald Trump announced that the Iran offensive was almost over.

To make the VIX great again, as it were, investors must offset the impact of options selling with complementary data.

Since rising oil prices are the economic manifestation of the Iran offensive, investors might monitor AAA gasoline surveys.

Should national gas prices rise to, say, $5 or even $6 a gallon -- ignore California, where prices are always high -- retail investors might really panic.

That would whack stocks, as nonprofessional investors have reliably bought every dip because they have been conditioned to believe stocks always rise.

If small-balance-sheet investors complain about the cost to fill up vehicles, it could mean less money for groceries, let alone stock trading. Such a scenario is unappreciated.

Rather than trying to buy stocks at the apex of fear based off VIX signals, consider integrating gas prices into your decision-making.

If you want 1,500 shares, buy three lots of 500 each when gas prices hit, say, $4.50, $5, and $5.50. Our preferred approach remains getting paid by the options market to buy stocks by selling puts with strike prices just below the stock price with one-month or less expiration dates.

This VIX strategy, buttressed with gas price data, is intended to capture more fear data. Options remain the best way to monetize investor irrationality and emotional dysregulation.

Email: editors@barrons.com

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March 11, 2026 01:30 ET (05:30 GMT)

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