Why Options are best way to play "Central Banks" dominated markets.....

Central Banks can change drivers of markets but they can't change emotions driving the market....
O Ashuji...

If the biggest asset market (fixed income market) is the most intervened market by the central banks, then rest of the market will be anything but natural. Correlations will break, conventional way of looking markets will be obsolete and only constant in asset market moves will be lack of permanence. Under current scenario, I will believe trading markets through options can be profitable. Large Section of the blog is sourced from Jamie Mai's (Cornwall Capital) interview in the book "Hedge Fund Market Wizards" by Jack D Schwager. 

"Options are priced lowest when recent volatility has been very low. In my experience, however, the single best predictor of future increases of volatility is low historical volatility. When volatility gets very low in a market, we consider that a very interesting time to start looking for ways to get long volatility, both because volatility is very cheap in absolute sense and because the market certainty and complacency reflected by low volatility often implies an above-average probability of increased future volatility." - Jamie Mai's (Cornwall Capital), "Hedge Fund Market Wizards" by Jack D Schwager.
Current situation should sound very similar to above situation. Though, beneath the surface certain very big markets have had big moves namely Gold/Silver during April 2013, Nikkei since November 2012 & JGBs since April 2013, equity markets so far remains relatively calm. Again, Idea here is not get the direction right (getting direction right in a world where natural course of action for market is constantly deferred with massive intervention by central banks, will be very difficult) but playing on bigger moves in the market. Options are best way to express that view with limited downside.

Variable within option pricing itself can help one play current environment in a better way. Variable includes - time, interest rates, volatility, etc

"Often, the longer the duration of option, the lower the implied volatility (IVs), which makes absolutely no sense. We recently bought far out of the money 10 year call options on Dow as an inflation hedge. Implied Volatility on the index is very low. The Dow companies would be in the best position to pass along higher prices. There is also an interest rate bet implicit in buying long-term options that can be quite interesting when interest rates are very low, as they are now. By being long 10-Year call options, we are taking exposure on the risk-free rate implicit in the option pricing models. If interest rates go up, the value of the options can go up dramatically." Jamie Mai's (Cornwall Capital), "Hedge Fund Market Wizards" by Jack D Schwager.

Smooth trending market often tends to understate the volatility. 

"One of our strategies is called cheap sigma and is predicated on the idea that markets sometimes trend and that volatility will dramatically understate the potential price move of markets that trend. For example, in 2007, Charlie noticed that the Canadian dollar was trending very smoothly as it broke the dollar mark for the first time in decades. Spot went from about 1.1 (CAD/USD) to about 0.92 - a very large price move. The market volatility, however, was very low. Based on the volatility, a nonsensically improbable event had just occurred. If the 3 month IV says that the price move that just occured was a three and half standard deviation event, we are going to like the odds of buying deep out of the money options for a price move back in the opposite direction." Jamie Mai's (Cornwall Capital), "Hedge Fund Market Wizards" by Jack D Schwager.
Since 4th June, 2012, most of the world markets were smoothly trending. However, since 2013 moves have become bigger and there is marked divergence among various equity markets and inter-assets (Precious Metals, Bonds, Stocks).

Assumptions that goes into option pricing can help identify profitable opportunities. 

"There is another type of option mispricing. The broader principle is that explicit and implicit assumptions that go into option pricing models often diverge from the underlying reality. Looking for those divergences can be very profitable exercise because you can wait and do nothing until you see a probability that is wildly mispriced. Option math works a lot better over short intervals. Once you extend the time horizon, all sorts of exogenous variables are introduced that can throw a wrench into the option pricing model. Another, example of distortion is introduced when the time interval is extended relates to the fact that the option-pricing models assume that volatility increases with the square root of time. This assumption may provide reasonable approximations for shorter time intervals, say one year or under, but if you have a very low standard deviation, and you extend it for a very long time, it doesn't scale properly. For example, if a one year standard deviation is 5%, assuming that the 9 year standard deviation will only be 15% is probably an understatement. Jamie Mai's (Cornwall Capital), "Hedge Fund Market Wizards" by Jack D Schwager.
Long Term Options, thus make very good sense.

Entire Chapter (SEEKING ASYMMETRY) on Jamie Mai contains far better examples and explaination and how options can be used for excellent asymmetric pay offs.