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Scanning For Potential Trading Ideas

Mar 21, 2018

By: Sage Anderson

With markets on the move, you might be wondering where the best opportunities are hiding. If that's the case, a recent episode of Options Jive should be of interest.

While we all have to decide what opportunities are the most suitable for our portfolio (according to our own unique risk profile) it never hurts to review a wide spectrum of potential trading ideas.

On this particular episode of Options Jive, the hosts simply highlight several places in the market where Implied Volatility Rank (IVR) looks interesting, as well as the current market narrative associated with each underlying.

While you may not find that any of these specific ideas are a good fit for your strategy or outlook at this time, it's possible you might decide to "mock trade" one or two of them to monitor how they'd perform over time. Mock trading is a great way of increasing your experience, without the pain that can sometimes be associated with "live trading" lessons.

As a reminder, Implied Volatility Rank (IVR) measures the relative value of implied volatility in a given underlying as compared to the last 52 weeks of data. For example, if implied volatility in ABC had ranged between 30 and 60 over the last 52 weeks and was currently trading 45, then the current IVR for ABC would be 50%.

At tastytrade, we often look for opportunities to sell premium when IVR is above 50%, and opportunities to purchase premium when IVR is below 50%.

On the aforementioned episode of Options Jive, the hosts review a handful of symbols and provide an update on current IVR and as well as any news that may be relevant to the underlying. The symbols reviewed in this episode include:

  • X

  • NFLX

  • MU

Traders looking for more context on the current volatility landscape, may also find an episode of Market Measures very compelling.

On this show, the hosts highlight how recent market volatility catalyzed an increase in option premium across the board, particularly as compared to 2017. The discussion also touches on IVR, and how traders need to be cognizant of the fact that increased IVR is usually associated with increased movement in the underlying security.

It’s also important to keep in mind that increased levels of IVR due typically take into account the fact that the underlying security is moving to a greater degree. As pictured in the graphic below, previous tastytrade research has demonstrated that win rates stay fairly consistent, even when stocks are moving more - typically because the credit received also increases:

If you are looking for some fresh ideas, even just for mock trading purposes, we hope you'll take the time to review these episodes of Options Jive and Market Measures when your schedule allows.

For a comprehensive review of Implied Volatility Rank, we also recommend this blog post.

If you have any questions on any of these topics, don't hesitate to leave a message in the space below, or send a message to support@tastytrade.com.

We look forward to hearing from you!
 


Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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