In today’s Option Jive segment, Tom and Tony discuss how High IVR increases profits. Specifically, this is accomplished by selling premium whenis high.
Our team demonstrates how high IVR actually translates to larger profits by first showing the formula to calculate IVR. High IVR necessitates high Implied Volatility. When a stock has higher IVR, it is because traders have bought options at such a rate that.
To further explain, we took a look at three underlyings: FXE, NFLX and SPY. SPY had the lowest IVR and is therefore the only underlying whose current Straddle price is lower than its historical price.
Next, the Research Team compared an IVR below 50 and an IVR above 50 and showed the benefits of the average Straddle Price as a percent of stock price as well as the average 25% profit target for a. In both cases, the high IVR proved superior.
The higher P/L per day seen in trades initiated during high IVR is due to a largervalue as well as the tendency of that high , aiding a short vega position.
Tom and Tony conclude the segment by reiterating the advantages of selling premium in high IVR and how high IVR offers a larger credit for short premium trades, thus producing a larger theta and larger P/L per day.