February 19, 2020, the S&P 500 closed at an all-time high of 3,386. By March 23, it had fallen to 2,237. The index had dropped 34% in 34 calendar days. No market in modern history had fallen that fast. The coronavirus pandemic had arrived, and markets didn't know how to price it.
The VIX told the story: from 13 on February 14 to 85 on March 16. The market's fear gauge moved from historically complacent to historically terrified in five weeks. Options that had been cheap in February became extraordinarily expensive in March — but the cost of that "expensive" protection was only visible to those who understood IV.
Covered Calls — Opportunity Cost in Real Time
For investors holding covered calls during March 2020, the story was particularly painful. Consider an investor who owned shares of an airline, cruise line, or hotel company and had been selling 30-day covered calls to collect income. As the market crashed, those calls didn't just lose their premium — they capped the investor's ability to participate in any recovery.
The worst part: many of these investors were assigned at the bottom. If you sold a $45 call on a stock that crashed to $20, you were forced to sell at $45 while the market was at $20. You missed the entire crash and missed the recovery — you collected $1.50 in premium and gave up $25 per share in value.
The Covered Call Lesson
Covered calls work in range-bound and mild bull markets. In crash-and-recovery scenarios, they can be catastrophic. The lesson from March 2020: don't sell covered calls on positions you'd be unwilling to sell outright. If you can't stomach selling the stock at the strike price, don't sell the call.
Cash-Secured Puts — Hell or Opportunity?
Cash-secured put sellers had a more nuanced experience. Consider a trader who had been selling cash-secured puts on airline stocks at strikes of $40-50, collecting $2-3 in premium. When those stocks crashed to $5-15, they got assigned.
What happened next depended entirely on the trader's thesis and willingness to hold: some held through the recovery and eventually made back losses as airline stocks partially recovered over the following 12-18 months. Others were forced to close at the worst possible time.
The key variable: would you buy this stock at the assignment price if you didn't already have a put on it? If the answer is no — if you were only comfortable holding it because the put "forced" you — the trade was wrong. Cash-secured puts should only be sold on stocks you'd genuinely be happy to own at the strike price.
Iron Condors — Wide Wings Survived
The traders who ran iron condors with wide put spreads (20-wide rather than 5-wide) largely survived March 2020. The market drop was large but not infinite — a 20-wide put spread on SPY was wide enough to absorb a 34% market decline without hitting maximum loss.
The traders who ran tight spreads (5-wide condors) got blown out. The gap down opening on March 16 — when the S&P opened down 5% — blew through short strikes on tight condors with no opportunity to adjust or close.
The Width Rule
When VIX is above 30, your iron condor put spreads need to be wide enough to survive a 15-20% gap open. In normal VIX environments (15-20), 5-wide spreads are adequate. In elevated VIX (25-35), go to 10-15 wide. In crisis VIX (above 35), either don't trade iron condors or use 20-wide spreads with very small position sizes.
The V-Shaped Recovery — Who Missed It
March 2020 had the steepest recovery in market history. By August 2020, the S&P had regained nearly all its losses. The investors who had been forced to sell at the bottom — assigned on covered calls or cash-secured puts — missed the entire recovery. The investors who had survived with their capital intact were able to buy at the cheapest prices in years.
This asymmetry is critical: iron condor sellers who had managed their risk and survived were positioned to profit from the recovery. Covered call and CSP holders who had been assigned at the bottom were out of the market at the worst time and often had their capital tied up in stocks they didn't want at prices they wouldn't have chosen.
What VIX at 85 Actually Meant
At VIX 85, implied volatility was pricing in an extraordinarily large expected move. Options were extraordinarily expensive. This sounds like a paradise for option sellers — and it was, until you understood the risk. At VIX 85, you were collecting enormous premiums. But you were also shorting something that had just proven it could move 10x faster than normal. The premium was a compensation for a very real tail risk.
The traders who collected those premiums and survived did so because their position sizes were small enough to absorb a move that exceeded their short strikes. The traders who collected the premium and got blown out had sized as if VIX 85 was just like VIX 25, just with bigger numbers.
Key Takeaways
1. Position Sizing Scales With VIX
When VIX is 15, your normal iron condor size works fine. When VIX is 85, the same size position will blow out your account. The rule: reduce position size as VIX rises. At VIX 25, cut to half size. At VIX 40, cut to quarter size or stand aside.
2. The Assignment Decision Is Pre-Commitment
Before you sell a cash-secured put, decide: would I buy this stock at this strike price right now, today, if I had to? If not, the strike is wrong. The assignment should never be a surprise — it should be a plan you've already made.
3. Wide Spreads Survive Gap Risk
Gap risk is the most dangerous risk in options selling. A stock can gap through your short strike overnight with no opportunity to adjust. Wide spreads cost more premium but survive larger gap moves. In high-VIX environments, premium is abundant — pay for the width.
4. Survival Is the Prerequisite for Everything Else
A trader who lost 50% of their account in March 2020 needed a 100% return just to break even — in the same market that just hurt them. A trader who lost 10% could stay in the game and wait for the recovery. The math of loss is unforgiving: preservation of capital in a crash is worth more than any potential return you might have earned by taking more risk.
The Recovery Belongs to Those Who Survive
March 2020 was one of the greatest buying opportunities in market history. The investors who had capital to deploy in late March 2020 made extraordinary returns over the following 18 months. Those who were forced to the sidelines because their accounts had been blown up had no position to benefit from the recovery. Staying in the game is the prerequisite for everything else.
Build Your Risk Management Foundation
Position sizing, VIX-adjusted spreads, and pre-committed exit rules are the foundation of a strategy that survives extreme events. See our Risk Hub for the complete framework.
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