The Regime Playbook
Four regimes. Three sleeves. One machine. This reference governs only the convexity edge — when each instrument switches on, what job it does, and the signals that trigger each state change.
VIX < 16 · VIX/VIX3M < 0.85 · IV < RV · IVR < 30 · Price above 200d MA · Term structure in steep contango
VIX crosses 18 · Term structure flattening · Breadth narrowing · Skew steepening quietly · Credit spreads beginning to widen
VIX 15–22 · IV ≈ RV · IVR 30–55 · Price in range (<5% channel, 20d) · Term structure flat
Range break with volume · VIX spike above 22 (→ Decline) · VIX collapse below 14 (→ Risk-On)
VIX < 16 but skew quietly steepening · Breadth deteriorating (ADL diverging) · Put/call ratio low · Credit spreads widening despite low VIX
VIX breaks above 18 with follow-through → Decline · Breadth improves & price breaks out → Risk-On
VIX > 25 · VIX/VIX3M > 1.0 (backwardation) · IV > RV +10pts · IVR > 60 · Price below 200d MA
VIX reverting < 22 · Term structure normalizing · Oversold divergence · Capitulation volume · Credit spreads stabilizing
| Instrument | Regimes | Delta / Structure | DTE | Sizing | Entry condition | Exit rule |
|---|---|---|---|---|---|---|
| Long call outright |
Risk-On | 0.30–0.45Δ | 45–90 | 0.5–1.0% per position | IV < RV · IVR < 30 · Price above 20d MA | Close at 2× premium or 21 DTE. Roll if conviction intact. |
| Call debit spread | Risk-OnDecline | Long 0.35–0.45Δ · Short 0.20–0.25Δ | 30–60 | 0.5–1.5% · width ≈5% of underlying | IV elevated but directional conviction high | Close at 50% max profit or 21 DTE. Hard stop at 50% loss. |
| LEAPS call 12–24 months |
Risk-On | 0.60–0.80Δ | 12–24 mo | 1–3% per name · max 3 names in LEAPS | Deep-conviction compounders · IVR < 40 | Roll at 6 months remaining. Sell at 3× or thesis break. |
| Ratio backspread 1×2 call |
Risk-On | Sell 0.50Δ · Buy 2× 0.25Δ | 45–75 | Net credit or flat · max 1% net long notional risk | IV cheap · strong upside skew expected | Exit if underlying approaches short strike before expiry. |
| Cash-secured put CSP |
CrabDecline | 0.20–0.30Δ (Crab) · 0.10–0.15Δ (Decline) | 20–40 (Crab) · 30–60 (Decline) | Cash secured · max 20% per underlying | Crab: IVR 30–55 · Decline: IVR > 60, sell into spike | Close at 50% profit. Roll if threatened. Accept assignment if strike was honest. |
| Covered call | Crab | 0.25–0.35Δ | 20–35 | Only on shares willing to part with at strike. Never on core compounders. | IVR > 30 · Price near resistance | Close at 50% profit. Buy back before earnings. |
| Iron condor | Crab | Short wings: ±0.15–0.20Δ | 25–40 | Max 2% per condor · SPX/SPY preferred | IVR > 40 · No binary event in window | Close at 50% profit. Adjust if tested within 7 DTE. Hard stop at 2× credit. |
| The Wheel CSP → CC |
Crab | CSP 0.25–0.30Δ → CC 0.25–0.35Δ | 20–35 each leg | Same as CSP sizing · only on names you’d hold long-term | IVR > 30 · Underlying in confirmed range | Exit wheel if regime shifts to Decline. Sell shares if CC above cost basis. |
| Index put spread defensive |
AlwaysRebuild in Topping | Long 0.25–0.30Δ · Short 0.10Δ | 45–90 (roll at 30) | 0.5–1.0%/quarter pacing within the 3.0%/yr bleed budget · hedge 15–25% of core notional | Always on · Rebuild most aggressively in Topping when vol is cheap | Monetize into VIX spikes. Roll forward at 30 DTE if not triggered. |
| VIX call spread | Topping | Long 0.35–0.45Δ · Short 0.15Δ (wide) | 30–60 | 0.25–0.5% · complement put spreads, don’t replace | VIX < 16 · IVR < 25 · Term structure steep contango | Sell into VIX spike above 30. Do not hold through mean-reversion. |
Defensive convexity is permanent. Premium cost is the price of the machine. Sizing may compress in Risk-On, but the book is never closed.
The regime call is always somewhat late. The hedge must already be on when the turn arrives.
The cash generation book and the defensive book are separate P&L buckets. Never net them. A condor profit does not reduce your hedge need.
Short-vol income and long-vol protection are not offsetting — they’re separate functions with different regime exposures.
Cash-secured puts are entry vehicles, not yield trades. The strike must represent a price at which you’d be happy to hold the underlying indefinitely.
Assignment is not a loss scenario — it’s an intended outcome. If you wouldn’t want the shares, the trade is speculation.
Outright long calls are structurally off in Topping and Decline. Only defined-risk structures (spreads) in those regimes.
In high-vol environments, vol crush on the long side destroys value even if direction is right.
Defensive positions are harvested when VIX spikes — not when you feel comfortable. The payoff is maximum at peak fear, not at recovery.
Long vol loses time value every day. Harvest when the premium is there.
Earnings, FOMC, and macro binary events are excluded windows for short-premium structures. Close or roll before the event.
Premium looks elevated for a reason — the event can gap through short strikes in one move.
Kill an offensive convexity position as soon as price action plus management signals plus competitive dynamics confirm that directional momentum has reversed. Defensive positions are exempt — the playbook and the calendar govern them: rolls by schedule, monetization by regime transition, never by momentum.
Offense is a bet on a live trend; when the trend is confirmed dead the bet is dead — no averaging down, no hoping. Hedges are insurance, not trades, and are killed only by the calendar or the payoff.
The hedge bought cheap in complacency pays out in decline. That payout buys the recovery. The recovery generates the lull that rebuilds the buffer.
Buy cheap insurance. Vol is complacent — accumulate downside convexity for pennies. Raise dry powder. Wind down the income book.
Hedge pays out. Monetize long vol into the spike. Sell rich CSPs on compounders. Deploy dry powder into the discount.
Capture the rebound. Cheap calls & backspreads on the recovery. Convexity is underpriced again. Ride the right tail.
Harvest the lull. Wheel & condors collect theta while price drifts. Rebuild cash buffer for the next turn.