Market Measures

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Reasons to Trade High IV

Market Measures

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

Fear is often overstated, but selling premium in the face of a market downturn is daunting! Today, we hope to reduce that fear by showing three key benefits of selling premium in the face of fear.

Study:
  • SPY Strangles, Closest to 45 DTE
  • 2005 to 2018
  • Compared delta:
    • 5, 10, 15, 20, 25, 30, 16, 40, 45, 50
  • Held All Trades Through expiration
  • VIX Threshold of 25 to Determine High Implied Volatility for Trade Entry
Results:

Selling strangles in high implied volatility leads to:

  • Higher P/L
  • Greater win rate
  • Better return on capital

Fear is generally overstated with the SPY staying within its expected range 84% of the time compared to the expected 68% of the time. ‘Volatility’ is synonymous with ‘Opportunity’ and careful trading during periods of high implied volatility provides a variety of portfolio benefits.

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