Nothing is free. This applies to everything in trading including selling premium in High IV environments. What is the cost to selling premium in various IV environments?Study:
- Sold 1 Standard Deviation Strangles in SPY, 45 DTE, Since 2005
- Managed at 21 DTE
- Segregated by IVR levels
- Recorded average P/L, success rate, volatility of P/L
Ultimately, the Research Team found that as we sell in higher IVR, we earn higher P/L, however, we also experience greater swings in our portfolio.
However, the increase in P/L in higher IVR environments is around double, and the risk only increases by around 20%. This makes the tradeoff of risk-reward worth it when trading in high IVR environments.