Sell Options with high Implied Volatility
Traders can make money when the stock movers but as well when it moves up and down and returns to its original price. Stock Markets, Stock Option, Futures and commodities are moving all the time. Past movements are no insurance for the future. How much a market or an underlying is moving gives the trader stability or instability. Unstable markets or sudden down moves causes Implied Volatility to rise.
Option sellers know that the more uncertain traders are about the market the higher volatility is and the higher the premium. In Volatile markets traders are going to hedge their positions. This means that more options is traded and the options may go up. Typically, as an option seller, this will mean more opportunities for you.
This is not to suggest you should sell in front of runaway, breakout moves. However, a spike in volatility often creates ridiculous strike prices temporarily available to option sellers. Investors tend to get carried away or lose their heads in the excitement of fast-moving markets. As an option seller, you can use these situations to your great advantage.
A spike in volatility often is a great time to sell options. A good example is when the company or government comes with unexpected news. Stock and or commodity prises changes and they must adjust to reflect the new numbers.
After the market has responded to the news, the price of the stock or commodity may settle. It is possible that the price moved most extreme on the first day. And then adjust its value lower as the price of the underlying continues to move toward it. These can be ideal conditions for selling option premium.
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Trade Binary Events
Earnings events are what we call trade-able binary events. Prior to an earnings announcement uncertainty peaks. This means that the underlying will experience some of its most extreme levels of volatility.
High IV Option Strategies
We sell options with High Implied Volatility. You receive much more option premium than low IV options. On the Dough and TOS platform you can easily see whether the stock options have high implied volatility. The strategies we apply with High IV strategies are:
- Iron Condors
- Iron Fly
- Credit Vertical Spread
- and Jade Lizard