Lower IV environments tend to have the largest “outlier” P/Ls for undefined risk strategies. With IV rapidly declining, how bad are those outliers as % of initial credit as IV goes down?
The tastytrade research team finds that as implied volatility rises in SPY, the size of the outlier become less severe as a percentage of initial credit.
Also, the probability of seeing an outlier defined in this study on stays more or less consistent over all IV environments, around 2% to 3% on a trade since 2005.
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