This page summarises some of the trading strategies that I use in the high implied volatility environment.
The low implied volatility environment is defined as stocks or indexes with Implied Volatility (IV) Percentile or IV Rank lower than 25. I only use high volatility strategies when IV percentile is higher than 25. When it gets lower than 25, I would consider implement low volatility trading strategies as well depending on the market situation. So there is a 5 points overlap between the strategies.
NOTE on IV percentile and Rank: IV percentile and IV rank are calculated differently and IV percentile is more sensitive to the actual IV change over the defined period of time used for the calculation. I personally use Thinkorswim platform so what it gives me is what I use.
Summary of High Volatility Trade Setup
Iron Condor, Strangle
- IV percentile higher than 25% for Indexes and 50% for stocks.
- If I need to make a trade between IV percentile 25-50%, I will try to go out more in time (example: choose 60 days expiration instead of 45 days) as it has been shown longer time can compensate the low IV somewhat, but not by much.
- Exit at 35% – 50% max profit. If too close to the expiration 35%, if not than 50%.
- IV percentile must be higher than 80%.
- Never place this trade on a short time duration, unless there is a binary event (earning) so that I know the IV percentile will drop immediately after the event.
- Exit at 25% max profit. This should be achieved after about 25 days with 45 days expiration options. If it takes longer than that, consider getting out.