NaughtyPines

WHEN SELLING PREMIUM, PRICE IS NOT YOUR SIGNAL

FX:SPX500   S&P 500 index of US listed shares
If you've ever watched any TastyTrade episodes with the 'Soz and Tony, you'll often hear Tom admonishing Tony to "quit showing him the chart." "Mmmm," you say, "Why does he do that?"

Well, it's because when "selling premium" (i.e., short strangles, iron condors, and credit spreads), price is not your signal to enter a trade, the implied volatility (IV) and/or implied volatility rank ( IVR             ) is, regardless of what price is at that moment in time. (I've blacked out price from mid-June to the present; it won't help you with the timing of your premium selling play).

It is high IV/IV rank that make for richer premiums and therefore more profitable setups when selling premium via iron condor, short strangle, or credit spreads.

Naturally, this is entirely counterintuitive to most traders, who spend oodles of time analyzing fib lines, S/R, channels, etc., along with two-three indicators to help them evaluate the best moment to enter and then additional oodles of time staring at the screen waiting for the ideal setup to occur. Don't get me wrong; these techniques and methods may play a useful role in scalping and directional option strategies like debit spreads, but they are largely a waste of time when selling premium.

Point in fact, I'm not quite the purist that the 'Soz is when it comes to at least glancing at the chart to reassure myself that the strike prices suggested by either the 1 standard deviation line or the "expected move" for the expiry I've chosen make some innate sense in light of recent price action             .

When selling premium, watch the underlying's IV/IVR, ignore the chart, and enter when IV and IVR             are high ... .



I really like what you wrote. I had asked "JR" once about IV and whether any indicators existed on Tradingview to give that IV information on a chart. It seems that it would have to be provided by a third party and may not be as easy to display on a 2 dimension chart. There are some 3d tools elsewhere but they are not something I have time to investigate currently. Anyway thanks for putting to words a basic idea that I sometimes forget because I trade on Fidelity and haven't been looking closely enough at IV. I just wish there were a way to display that type of information on our charts to help us see when some trades aren't quite as attractive as you might think they are.
Reply
NaughtyPines MrNeutral
The closest indicator on TV is "Historical Volatility," but that is a slightly different concept than "Implied Volatility." Most major brokers have a vol indicator you can overlay on the chart, but I use Dough.com that provides a grid of equities, ETF's and such, which ranks them by IVR. IVR takes the underlying's volatility and tells you where the volatility is in its historical range for that underlying (e.g., an IVR of 70 says that the IV for the underlying is at 70% of the high). Otherwise, you can just look at the IV indicator your broker provides and eyeball if it's at the high end of its range ... .
Reply
a fresh wrinkle....my thanks
Reply
United States
United Kingdom
India
Deutschland
España
France
Italia
Polska
Brasil
Россия
Türkiye
Indonesia
Malaysia
日本
한국
简体
繁體
Home Stock Screener Forex Signal Finder Cryptocurrency Signal Finder Economic Calendar How It Works Chart Features House Rules Moderators Website & Broker Solutions Widgets Stock Charting Library Priority Support Feature Request Blog & News FAQ Help & Wiki Twitter
Profile Profile Settings Account and Billing Priority Support Ideas Published Followers Following Private Messages Chat Sign Out