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Market Measures

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Volatility & Time | 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.

We have previously found that when Implied Volatility (IV) is low, we are able to extend the duration on our trades in order to compensate for the low volatility. This begs the question, is the opposite true? By this we mean, is it viable to shorten our duration when IV is high?

Today, Tom Sosnoff and Tony Battista test this strategy. The guys look a large study testing a 1 Standard Deviation Strangle placed when IV Rank is over 80. They then compare the results of placing these trades with 45 Days To Expiration and 18 Days to Expiration. They find out that your total profit is higher when using the longer dated expiration cycle but when looking at an average profit per day in the trade, the two strategies are comparable!

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