Room for Opportunity
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Description
Short premium positions are most profitable in high IV environments, and we trade IVR > 30 as a rule of thumb to ensure this. However, if IVR becomes skewed, there may still be short premium opportunities when IVR 30. With all the major index ETFs having IVR 30, is there still room for opportunity? Comparing the current IV with the 10-year average IV for each index, we can see that each market index has the potential for significant IV contraction and profitable short premium opportunities.
More Episodes
The simplified Expected Move formula “Stock Price ✕ (IV / 100) ✕ SquareRoot(N / 365)” allows for traders to easily calculate the market’s expectation for a particular stock to move a certain amount over any number of days. Remember, implied volatility is the driver of expected move, so when IV of...
Published 08/17/20
Quantifying the overall risk factors of a portfolio becomes more complicated when you begin including options in addition to equities. The Greeks can be used to characterize risk for individual option contracts, as well as the overall risk of multi-contract strategies and option portfolios. Today...
Published 05/21/20
Using delta as our strike selection allows us to get a fairly accurate representation of the risk we are taking on relative to the premium we collect.
Over the years, delta has adjusted for the growth in stock price, changes in volatility, and the premium collected. This is what makes it easy to...
Published 03/10/20
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