Investing is all about probabilities and strategy. It is about limiting your upside in return for a higher probability of success and then it's about managing winners. With implied volatility so low (VIX currently trading at 13) there is time for more diagonals put spreads. A diagonal put spread is a calendar spread and a debit put spread together. It's a directional spread that plays the assumption of an increase in volatility as well.

There are many potential short candidates but one of my favorite is GOOG. There are many reasons about that. GOOG seems to me so overbought in the short run period. I like to calculate the expected move for liquid and efficient stocks, two weeks before an expiration option cycles ends. The expected move is calculated by the implied volatility of options, and for June with 36 days left , calculated two weeks ago given the current volatility is between 910$-770$. GOOG is currently trading at 32% Implied Volatility Percentile, and has actually a very low implied volatility at 21.67%.

My strategy is to Sell the back month (June 13-36 days left) and buy the front month (July 13-64 days left). GOOG is currently trading at 903.87, so the basic idea is to buy a put 905 (July 13) and sell the 900 put (Jun13). This spread is currently trading at 16.00$. So this means that an investor can buy this spread for 1600$ per contract.

There is no risk in the downside because you are protected from the front month put (July 13). You have positive theta (time decay) and if there is an increase in volatility (Vega) GOOG spread is going up substantially. Break even for the spread is at 925.83, meaning that if the spread at the end of June 13 close at these levels you lose nothing. The probability that GOOG is going to be at 925$ by the June 13 is only 35%. If GOOG is above this level in June 13, you have two choices. You can convert the diagonal spread into a put debit spread by adding more credit by selling the (click to enlarge)July 13 900 Put, or you can close the spread by taking your losses.

If GOOG stays at current levels (903.87$) in Jun 13 your profit from this trade is at 713$. I like to manage my winners and don't leave my trades until the end of the expiration cycle. The diagram shows the risk profile of the trade. Trade small and manage your winners is the key to success .

**Disclosure: **I am short GOOG.