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Low IV Premium Selling

Market Measures

The market has recently witnessed new lows in the S&P 500 Implied Volatility Index (VIX), which has sparked the conversation over whether or not traders should be selling premium even when implied volatility is low. Though it may seem difficult to sell premium in the S&P 500 (SPY) when the VIX is at lows, waiting for a volatility spike in order to sell premium can be detrimental to consistent returns because IV can stay low for long periods of time.

Tom talks about how he combats this inherent fear that comes along with selling premium in low IV; his tactic is to keep short deltas in a strong market witnessing low IV levels.

The Results

The historical results showed that while the average credits received in low IV Rank environments are less, the win rates for selling premium are still consistently high in low IVR. Tom talks about “taking what the market gives you,” and not trying to put on too much size or wait too long when IV is low because the way to make consistent profits is to be consistent with your strategy. Historically, the average P/Ls in low IVR were indeed less than when in high IVR; however, the win rates were very similar and the average P/Ls were still positive, which leads us to believe that consistently implementing short premium trades is a profitable strategy.

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