High Implied Volatility Option Strategy
What Are The Characteristics Of This Option Strategy?
The high implied volatility option strategy is a combination of options trading strategies used by investors for the purpose of profiting from an asset’s high volatility. This strategy is executed by combining the purchase of calls and puts on the same underlying asset and with the same strike price. The traders generally use a variety of technical indicators, price action and fundamental analysis to determine if the asset has high volatility.
Is This A Bullish, Bearish Or Neutral Strategy?
The high implied volatility option strategy is a neutral strategy. It is executed in anticipation of future price movements without taking any directional bias.
Is This A Beginner Or An Advanced Option Strategy?
The high implied volatility option strategy is classified as an advanced option strategy. Experience and knowledge in the options market are required before using this strategy.
In What Situation Will I Use This Strategy?
The high implied volatility option strategy can be used in a variety of market conditions. The strategy can be used when the volatility of the underlying asset is high, or when the trader is expecting a sudden increase in volatilities.
Where Does This Strategy Typically Fall In The Range Of Risk-Reward And Probability Of Profit?
The high implied volatility option strategy typically falls in the high risk-high reward and high probability of profit range. It is considered a risky strategy because of the potential to lose large amounts of capital in a short amount of time.
How Is This Strategy Affected By The Greeks?
Options strategies are affected by the four main greeks – Delta, Gamma, Vega, and Theta. The high implied volatility option strategy is affected primarily by Vega. Vega represents the rate at which the value of an option contract changes due to a 1% change in implied volatility. Since this strategy is generally relying on a high volatility period to be profitable, Vega will be the main factor in determining the success of the strategy.
In What Volatility Regime (I.E VIX Level) Would This Strategy Be Optimal?
This strategy is minimally effective when implied volatility is low. It is therefore best used when the VIX level is higher than 30%.
How Do I Adjust This Strategy When The Trade Goes Against Me? And How Easy Or Difficult Is This Strategy To Adjust?
It is relatively easy to adjust this strategy when the trade is going against you. One strategy is to move to a different strike price or expiration date to take advantage of a different implied volatility environment.
Where Does This Strategy Typically Fall In The Range Of Commissions And Fees?
The high implied volatility option strategy typically falls in the higher range of commission and fees. This is because the strategy generally involves buying and selling both calls and puts, which increases the costs associated with executing the strategy.
Is This A Good Option Income Strategy?
The high implied volatility option strategy can be used as a source of income, but it is not recommended for novice traders. This strategy carries a high amount of risk, and there is no guarantee of profits.
How Do I Know When To Exit This Strategy?
It is important to monitor the implied volatilities of the underlying asset to determine when it is time to exit this strategy. When the implied volatility of the underlying asset decreases, it is time to exit the position and close out the profits.
How Will Market Makers Respond To This Trade Being Opened?
Market makers will generally not respond to this trade being opened. This strategy generally does not involve the market maker taking a directional bias and therefore they will not intervene.
What Is An Example (With Calculations) Of This Strategy?
Here’s an example of the High Implied Volatility Option Strategy using the stock MSFT, which is trading at $285:
Assuming that we expect MSFT’s price to experience a significant move in the near future due to high implied volatility, we could use the High Implied Volatility Option Strategy to profit from this. In this case, we could set up the following trade:
Buy 1 MSFT call option with a strike price of $285 for a premium of $10.00
Buy 1 MSFT put option with a strike price of $285 for a premium of $8.00
The total cost of this trade is $18.00, which is the maximum potential loss for the strategy. The maximum potential profit is unlimited if MSFT’s price moves significantly in either direction.
If MSFT’s price stays around $285, both options will expire worthless, and we will lose the entire premium paid. However, if MSFT’s price moves significantly in either direction, one of the options will be in the money, and we will start making a profit. If MSFT’s price rises above $295, for example, the call option will be in the money, and we will start making a profit on the trade.
MarketXLS
Investors and traders looking to execute the high implied volatility option strategy can take advantage of MarketXLS’s easy-to-use trading platform and analytical tools. MarketXLS’s indicators help traders easily determine the current implied volatility of the underlying asset and allow them to track the price action of their options trades. MarketXLS also offers options trading calculators which can help traders calculate the expected profit and loss of their options trades.
Whether you are a beginner trader or an experienced trader, MarketXLS can help you create a trading strategy for the high implied volatility option strategy. With MarketXLS, you can easily track the performance of your trades, manage your risk, and increase your probability of profit.
Here are some templates that you can use to create your own models
Search for all Templates here: https://marketxls.com/templates/
Relevant blogs that you can read to learn more about the topic
Difference Between Historical And Implied Volatility
Options Trading For Beginners (Management And Tracking)
Long Call Diagonal Spread – An Advance Option Strategy
Protecting Against Implied Volatility(Long Straddle)
Introduction to High IV Options