In his book "The Volatility Edge" Jeff Augen makes the comment that trading options on an index because it is safe is flawed logic, because index options do not reflect the true state of implied volatility.
Right now trading XLE which is a broad based energy index has shown a rather smooth price chart that moves between a reasonable range but over the past two months double diagonal and
calendar trades seem to have been crushed as a result of IV even though the IV has continued to remain low and the XLE options are under priced - low IV type trades such as a double Diagonal or Calendar have been punished over the past month.
Refer to the price chart above and note that both IV & SV remain low.
Maybe Augen is right in that some index options simply hide their real volatility away and are deceptive when it comes to income trades such as time spreads?
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